Economies of scale are the savings achieved by buying, producing, and consuming goods in large quantities. An everyday example of this is bulk and package deals in stores, which allow consumers to save money by buying a certain amount of the product.
Large producers apply this using techniques such as mass production.
A view inside a Westminster Teak factory.
An analogy for economies of scale is preparing and consuming a meal. If one person prepares a small portion of food (the product) and eats it (consumption), there are dishes to be washed (part of the cost). If the same portion of food was prepared again, the dishes would have to be washed again. But, if both portions are prepared at the same time, and one is saved for later, the cooking implements would only have to be washed once, reducing the energy cost per portion. If both portions are prepared and consumed at the same time (not that you necessarily should eat that much), all the dishes would only have to be washed once, reducing the cost per portion further. This illustrates a reason why economies of scale exist; while some costs remain proportionate to the amount produced (like the energy required to eat the food), others are one-time or by batch (like washing the dishes). Spreading these costs out over larger batches allows the producer to lower their costs, which can then be passed on to the consumer in the form of lower, more competitive prices.
Reductrion of cost resulting in increased production and efficiency like stated before when economies of scales are used, our efficiency is increased. Another example would be Wal Mart having such a large buying prices. Their overall store prices can be lowered.
Large producers apply this using techniques such as mass production.
An analogy for economies of scale is preparing and consuming a meal. If one person prepares a small portion of food (the product) and eats it (consumption), there are dishes to be washed (part of the cost). If the same portion of food was prepared again, the dishes would have to be washed again. But, if both portions are prepared at the same time, and one is saved for later, the cooking implements would only have to be washed once, reducing the energy cost per portion. If both portions are prepared and consumed at the same time (not that you necessarily should eat that much), all the dishes would only have to be washed once, reducing the cost per portion further. This illustrates a reason why economies of scale exist; while some costs remain proportionate to the amount produced (like the energy required to eat the food), others are one-time or by batch (like washing the dishes). Spreading these costs out over larger batches allows the producer to lower their costs, which can then be passed on to the consumer in the form of lower, more competitive prices.
Sources
http://www.westminsterteak.com/wt/factory.php
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Reductrion of cost resulting in increased production and efficiency like stated before when economies of scales are used, our efficiency is increased. Another example would be Wal Mart having such a large buying prices. Their overall store prices can be lowered.