Economies of scale
Definition. Economies of scale are the reductions in long run average cost of production that a firm enjoys as it expands its scale of output. Because falling unit costs allow large incumbents to price below smaller rivals, substantial economies of scale can act as a barrier to entry that deters new firms.
They arise from sources such as bulk buying, specialisation of labour, and the spreading of fixed costs over more units, and are shown by a downward sloping long run average cost curve.
This term belongs to Barriers to Entry in A Level Economics. Read the full chapter for the diagrams, worked examples and exam technique.
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