Summary: A firm's achieving of internal economies of scale would enable it to obtain higher profits due to the incorporation of lower average costs. Various strategic methods exist in order to achieve this, such as buying in bulk. External factors that may affect a firm's long run average cost include improved transport facilities, access to cheaper power and infrastructure, and increased government regulation. (3.2 pages / 962 words) Read Essay
Internal economies of scale refer to a firm's large scale of production in order to minimise costs. Achieving internal economies of scale would mean that the firm would be enable to obtain higher profits due to the low average costs that are incorporated. In order to do this, a firm must implement various strategical methods in order to ensure that it can maximize its profits, including `bulk buying'. There are a number of external factors which may affect a firm's LAC (Long run average) cost. Some of these factors include improved transport facilities, access to cheaper power and infrastructure, and increased government regulation.
Where a firm needs to achieve a large scale level of production before it can minimise costs is known as economies of scale. Economies of scale reflect the advantage for a firm which are experiences as a firm increases its level of output. Economies of scale are reached when average cost per unit of production fall as the size of output grows. Average cost is the per unit cost of production, obtained by dividing the total cost of producing a certain level of output by the quantity of total output.
Increased specialisation and division of labour will benefit a firm due to the fact that the productivity of the firm will increase. With inc ...