what exactly are economies of scale? how do they come about, and what do they do exactly?

Question

what exactly are economies of scale? how do they come about, and what do they do exactly?

In: Economics

Answer 1

Manufacturing a large quantity of items is usually cheaper per item due to fixed costs being more spread out, bulk purchasing power for the materials, and using automated assembly systems.

Imagine making one donut. It would take you 30 minutes. Now make a dozen donuts – it’ll take 40 minutes. That’s a lot less time per donut.

I worked for a company that made tape drives. They signed an agreement to make tens of thousands of them and sell them at cost to a large company. Why? Because the bulk purchasing power and assembly lines they set up cut the costs of their own products by half. That’s economies of scale.