Economies of scale arise when unit costs fall as output increases.

Internal Economies of Scale

  • Buying economies—buying greater quantities usually results in lower price (bulk-buying)
  • Technical—use of specialist equipment of process to boost productivity
  • Marketing—spreading a fixed marketing spend over a larger range of products, markets, and customers
  • Network—adding extra customers or users to a network that is already established
  • Financial—larger firms benefit from access to more and cheaper finance

Labour Productivity

Labour Productivity = Output per period (units) / Number of employees at work

The answer will typically be expressed in terms of output per employee. Eg: 1000 units per employee per month