The Scale of Production
- Production on a large scale is a very important feature of modern industrial society. As a consequence, the size of business undertakings has greatly increased. Large-scale production ouers certain advantages which help in reducing the cost of production.
- Economies arising out of large-scale production can be grouped into two categories; viz., internal economies and external economies. Internal economies are those economies of production which accrue to the firm when it expands its output, so that the cost of production would come down considerably and place the firm in a better position to compete in the market euectively.
- Internal economies arise purely due to endogenous factors relating to eflciency of the entrepreneur or his managerial talents or the type of machinery used or the marketing strategy adopted. These economies arise within the firm and are available exclusively to the expanding firm.
- On the other hand, external economies are the benefits accruing to each member firm of the industry as a result of expansion of the industry.
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