What is economies of scale and diseconomies of scale

Updated: Feb 22

Economies of scale happens when a business grow large enough to enable them to lower average cost, while diseconomies of scale happens when a business grows too large, resulting in inefficiency.

There are five (5) types of economies of scale are;

  1. Purchasing economies

  2. Marketing economies

  3. Risk bearing economies

  4. Technical economies

  5. Financial economies

Two (2) types of diseconomies of scale;

  1. Management diseconomies

  2. Labour diseconomies

Purchasing economies

Purchasing economies happens when a business is able to take advantage of a lower price by negotiating with the suppliers, because they purchase in large amounts or bulk.

Marketing economies

Marketing economies happens when a firm is able to promote or distribute multiple products in large amounts at a time. This saves the firm on promotion cost as a single advertisement campaign could include all or multiple products.

Risk bearing economies

With multiple different products, a business could reduce risk of loss from falling demand of one of its product.

Technical economies<