Short Notes: Economies of Scale

Most economic production requires the producing firm or organization to make an initial investment (in real capital, in engineering and design, in marketing) before even the first unit of production occurs.  As total production then grows, the cost per unit of that initial investment shrinks.  For this reason, most industries demonstrate economies of scale, whereby the unit cost of production declines as the level of output grows.  Because of economies of scale, larger companies have an advantage in most industries, and the economy usually operates more efficiently when it is busy and growing (than when it is shrinking or stagnant).