Question

Explain economies of the scale of production.

Answer 1

Marshall has classified economies of scale into two parts as under:

1. Internal Economies: Individual enterprises experience internal economies. Every company can lower its production costs. It increases its production scale to the ideal level. Making better use of underutilized resources is made possible by an increase in production size. It results in the introduction of a better division of labor. Prof. Koutsoyannis has divided the internal economies into two parts.
   1. Real Economies: Real economies are those which are associated with the reduction of physical quantity of inputs, raw materials, various types of labour and capital, etc.
   2. Pecuniary Economies: Pecuniary economies are those that can be obtained by lowering the cost of the inputs utilised in the manufacturing and distribution processes. Because they purchase raw materials in quantity, huge companies are able to obtain them at a discounted price. They also benefit greatly from ads and bank borrowing concessions.
2. External Economies: All of the advantages that all businesses in a certain industry have are referred to as external economies. These economies have little to do with the cost-cutting initiatives of a single company. Instead, these economies are shared by all local businesses.