Economies of scale, in microeconomics

Microeconomics

Microeconomics is a branch of economics that studies the behavior of how the individual modern household and firms make decisions to allocate limited resources. Typically, it applies to markets where goods or services are being bought and sold...

, refers to the cost advantages that an enterprise obtains due to expansion. There are factors that cause a producer’s average cost per unit to fall as the scale of output is increased. "Economies of scale" is a long run concept and refers to reductions in unit cost as the size of a facility and the usage levels of other inputs increase. Diseconomies of scale

Diseconomies of scale

Diseconomies of scale are the forces that cause larger firms and governments to produce goods and services at increased per-unit costs. The concept is less well known than economies of scale.-Communication costs:...

 are the opposite. The common sources of economies of scale are purchasing (bulk buying of materials through long-term contracts), managerial (increasing the specialization of managers), financial (obtaining lower-interest

Interest

Interest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money, or money earned by deposited funds....

 charges when borrowing from banks and having access to a greater range of financial instruments), marketing

Marketing

Marketing is the process used to determine what products or services may be of interest to customers, and the strategy to use in sales, communications and business development. It generates the strategy that underlies sales techniques, business communication, and business developments...

 (spreading the cost of advertising over a greater range of output in media market

Media market

A media market, broadcast market, media region, designated market area , Television Market Area , or simply market is a region where the population can receive the same television and radio station offerings, and may also include other types of media including newspapers and Internet content...

s), and technological (taking advantage of returns to scale

Returns to scale

In economics, returns to scale and economies of scale are related terms that describe what happens as the scale of production increases in the long run, when all input levels including physical capital usage are variable...

 in the production function).