FNPF - What is Economies of Scale

jules72
jules72 Registered Posts: 13 Regular contributor ⭐
in AAT Level 4 (Level 8 in Scotland)
Could someone please in simple terms explain what is "Economies of Scale" and give me an example.

Needs to understand it before exam Friday, have just not come accross it before.

Cheers
Ju x

Comments

  • Newts22
    Newts22 Registered Posts: 59 Epic contributor 🐘
    Briefly, as I'm not studying FNPF yet, but the Cost of units reduce as other inputs rise.
    Good luck for Friday!
  • uknitty
    uknitty Registered Posts: 591 Epic contributor 🐘
    Economies of scale is when it works out cheaper to make something because you are making more of it.

    In terms of fixed costs this means that the fixed cost is spread over more units. Example : It costs £50 a day to run a machine. If I make 5 units then the cost per unit is £10, but if I make 50 units the cost per unit is only £1

    Another example of economies of scale would be discounts offered for raw materials. As an example, a supplier may offer a discount or preferential price for buying more of the product.
  • jules72
    jules72 Registered Posts: 13 Regular contributor ⭐
    Thank "Newts22" and "Uknitty". Now understand, appreciated.

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