What is Economies of scale?
Economies of scale: Average cost per unit falls as output grows.
Where Economies of scale fits
Economies of scale is part of Operations in Management. Operations turn inputs into outputs. Find the bottleneck, cut waste with lean methods, outsource non-core work and use economies of scale as volume grows.
Practical tip
Improve the slowest step first; speeding up others changes nothing.
Related terms
- Bottleneck
- The step that limits a whole process's speed.
- Outsourcing
- Hiring outside firms to do part of the work.
- Lean manufacturing
- Cutting waste in production while keeping quality and value.
- Capacity planning
- Deciding how much output a business can handle.
- Standard operating procedure
- A step-by-step guide for routine tasks.
- Process mapping
- Drawing the steps of a workflow.
- Waste reduction
- Cutting activities that add no value.
Formulas you will use with it
Test yourself
Which term means: “Average cost per unit falls as output grows.”?
Standard operating procedure · Bottleneck · Economies of scale
Answer: Economies of scale
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