Explain the concept of economic scale

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Explanation:

Economies of scale refer to the cost advantages a business will enjoy due to producing in large quantities. There exists an indirect relationship between the per-unit cost of an item and the quantities produced.  A larger volume of production will have a lower per-unit cost of the output.

The fixed cost part is one factor why a business experiences economies of scale. In production, fixed costs remain constant throughout the financial period. A large output means that the fixed costs will be spread over many units resulting in a lower fixed cost element in every item. A low volume output implies that the fixed costs will be divided by a few items resulting in a high fixed cost element per unit. Large-scale production leads to lower per-unit costs, which is referred to as economies of scale.

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