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What is Economies of Scale?

Economies of Scale is an economic concept that says the efficiency of production rises as the quantity of goods produced increases.

With scale, the costs associated with production should decrease thereby allowing a company to increase profitability with more goods produced. However, in many cases the upside potential is not necessarily unlimited. A company may experience diminishing marginal returns to producing more goods.

Generally speaking, however, the larger the company, the more control they have over the cost of inputs and the more pricing power they have.

Keywords: profits, supply, demand,