Economies of Scale

Economies of scale exist when long-run average costs decline as output expands. Labor specialization often gives rise to economies of scale. In small firms, workers generally do several jobs, and proficiency sometimes suffers from a lack of specialization. Labor productivity can be higher in large firms, where individuals are hired to perform specific tasks. This can reduce unit costs for large-scale operations.

Technical factors can also lead to economies of scale. Large-scale operation permits the use of highly specialized equipment, as opposed to the more versatile but less efficient machines

3 Relations among total, average, and marginal curves are discussed in greater detail in Chapter 2.

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