Economies of scale refer to the cost advantages that a business can achieve by increasing its production. This is because, as production increases, unit costs decrease due to the increased efficiency of the process. As a result, the cost of the product decreases, making it more affordable for consumers. Economies of scale can also be achieved through bulk purchasing of materials and supplies, which reduces the cost of each individual product. By taking advantage of economies of scale, businesses can provide consumers with cheaper products, making them more affordable and accessible.
External economies of scale refer to the economic benefits that a company or industry can reap from being located in a specific geographical area. These benefits can include access to specialized resources, an increased pool of skilled labor, and increased competition. Additionally, local governments may provide incentives such as tax breaks or subsidies to draw businesses to the area. These external economies of scale can help businesses to expand and increase their profits. By taking advantage of external economies of scale, businesses can become more competitive and efficient, ultimately leading to greater success.