Economies of Scale

Syllabus tag: KCSE | Business Studies | Form 3 | Topic 17 Economies of Scale

Lesson objectives

By the end of this topic, you should be able to:

• Define economies of scale and distinguish internal from external.
• Describe the types of internal and external economies.
• Explain diseconomies of scale and their sources.
• Explain why small firms survive alongside large ones.

Summary

Economies of scale are the cost advantages a firm gains as its output grows, so that the cost per unit falls. Internal economies arise from the firm's own growth; external economies arise from the growth of the industry or area. Beyond a point, diseconomies set in and unit cost rises again — which is why small firms survive rather than being driven out.