Economies of Scale

A production process has economies of scale when the cost to produce each unit falls as the quantity of output increases. Some of the reasons why costs may fall when production quantity increases include volume discounts for supplies, longer utilization of equipment without downtime, increased time for learning to improve process expertise and quality, and enhanced productivity from resources (such as labor or capital equipment) that do not need to increase at the same rate as the quantity of production output. Each of these reasons explains, for example, why it costs less per car to produce many cars in an automobile factory than it does to produce just a few cars.

Ethical issues associated with economies of scale include honest measurement and equitable assignment of cost ...

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