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Various Types Of Economies And Diseconomies Of Scale

It refers to the economies / benefits which a firm gets internally due to the expansion of scale of production. It is simply enjoyed by a particular firm and not by all the firms in the industry.

Internal economies may be classified into following:

Technical economies: when a firm increases its scale of production, it becomes possible for it to make use of modern machines and superior technique of production. As a result per unit cost of production goes down. Similarly large firm has mechanical advantage of using large machines. Large machines require comparatively less labour for construction and cheapest to operate. A big ship can carry goods at cheap rates.

Managerial economies: 640-816 a large scale firm can afford to engage competent and efficient managers. Management is divided under separate functions. Division of labour accordingly can improve the efficiency and reduce the cost of production.

Marketing economies: A large scale firm has a separate marketing department. Marketing of finished product can be done cheaply. It can spend a large sum on publicity and advertisement. Thus a large firm secures certain advantages in buying and selling.

Financial economies: 640-802A large sized firm has high credit rating. It is in position to secure huge loans at low rate of interest.

Economies of welfare: A large firm with its large resources, may run subsidized canteen, and provide cheap houses, educational and medical facilities for the families of workers and clubs outside the factory.

Economies of research: A large firm possesses large resources than a small firm and can establish its own research laboratory and employ trained research workers. Such research technique and labs become the property of the firm which utilizes them for increasing its output and reducing cost.

External economies of scale:External economies refer to the benefits which all the firms of an industry share equally as a result of the general industrial growth.

Economies of concentration: It refers to localization of localization of large number of firms producing similar goods. As a result firms get various kinds of advantages.

Economies of information: When several firms of an industry are established at one place, one may find publications of useful information concerning that industry, as very useful. The information may relate to new inventions, new markets, price prevailing at different markets, position of demand in various markets etc.

Economies of raw material: Plants situated in isolated spot will have to maintain sufficient buffer stock of raw material. But if many firms are situated in locality raw materials are easily available.

Economies of specialization: Development of an industry is followed by undertaking of different processes by different firms. For example, different firms may come up specializing in dyeing, bleaching, weaving and spinning rather than one firm handling all these related processes. This increases the degree of specialization and lowers the cost of production.