ABSTRACT
This chapter contains economies of scale; the principles on which it is based; underlying assumptions; guidance on application, and relevant issues; and related models. Economies of scale are increasing returns which are achieved when average costs decrease as output rises. Economies of scale result when factors of production are used effectively as output rises. When long-run average costs are declining, average costs of production fall as output increases and economies of scale are achieved. Constant returns to scale occur when long-run average costs remain unchanged as output rises. Diseconomies of scale, or decreasing returns, are achieved when long-run average costs increase as output rises. Flatter organizational staff structures mean lower management staffing levels. This reduces costs and bureaucracy, but can only result in economies of scale if the remaining managers control their increased responsibilities effectively. Potential economies of scale within an organization may be identified and targeted to increase profitability. Output levels may be calculated to optimise economies of scale.
