Hi friends, in today’s article we are going to know about the difference between Economies of scale and Diseconomies of scale. So let’s discuss in details.
Difference between Economies of scale and Diseconomies of scale
Economies of scale is the phenomena where firms achieve better output (lower cost) with an increase in production and scale of operations. In simpler terms, the higher the production the lower the cost.
This is specially true for cases where the fixed cost component (such as capital cost of installation and equipment’s, etc.) is high. In such a scenario a higher output simply translates to lower cost per unit.
There are two types of economies of scale – (i) Internal economies of scale and (ii) Diseconomies of scale.
Internal Economies of Scale
The internal economies of scale means advantages of large scale production which are available to a firm within the area of its own operation. Internal economies are of the following types –
• Technical Economies
• Labour Economies
• Managerial Economies
• Marketing Economies
• Financial Economies
• Transport and Shortage Economies
• Risk-bearing Economies
Internal economies of scale is related to a single factory.
External Economies of Scale
It refers to those benefits which are share in by a number of firms or industries when the scale of production in any industry. Ciarncross has classified external economies into the following five heads –
• Economies of Concentration
• Economies of disintegration
• Economies of localization
• Economies of Information
• Economies of by products.
Diseconomies of scale is the exact opposite where items are produced at higher per unit cost, that is economies of scale no longer work at higher production.
This may be due to higher transportation or storage of products. It is also can be classified into two categories –
(a) Internal diseconomies of scale and
(b) External diseconomies of scale
Internal diseconomies refers to all those inputs which increase the cost of production of a particular firm when its increases own operation beyond the certain limit. Internal diseconomies are –
• Technical diseconomies
• Management diseconomies
• Production diseconomies
• Marketing diseconomies
• Financial diseconomies
External diseconomies means losses of large scale production which are suffered by all the firms operating in a given industry. Some external diseconomies are –
• Diseconomies of infrastructure
• Diseconomies of high input prices
• Diseconomies of pollution.
In production system, increasing returns to scale occurs due to economies of scale and while decreasing returns to scale occurs mainly due to the diseconomies of scale.
So friends, this was the difference between economies of scale and diseconomies of scale. Hope you get the full details about it and hope you like this article.
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