Answer to Question #173109 in Finance for Lindah Chesut

Question

Explain giving examples why it is cheaper to produce commodities in large scale.

Answer 1

This is an effect of scale.

The effect of scale occurs in the course of the company's activities in the long term. It directly relates the value of the average cost of production and the scale of production. The essence of this relationship is that up to a certain point, average costs fall as the scale of production increases. In other words, the effect of scale is called the effect of saving resources by increasing the scale of production.

The effect of scale arises from the fact that the growth of production leads to the forced action of factors that contribute to the reduction of production costs.