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Economy of scale

Economy of scale Definition

Economy of scale means: when production is increased, unit costs can be reduced, the cost of each additional unit diminishes. When only a few units are manufactured, the fixed amount costs are relatively high. As the scale of output grows, the value of the fixed costs does not increase to that extent. Operational efficiencies can also develop that results in falling unit cost. A business obtains these cost advantages due to expansion.

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