what exactly are economies of scale? how do they come about, and what do they do exactly?
In: Economics
Imagine if you wanted to sell apples.
You go out and you get your stand together, and bring your one apple. You sell it, and take the time to do the exchange with one customer. You get 1$ for the apple, but it took you a ton of effort just to sell one apple.
The next day, you go out and you do the same thing, except this time you sell 1000 apples. You still only had to set up once, but some customers bought 200, some bought 5, but you made $1000 and the effort you had to take selling them in some parts of the setup was the same as the first one. In turn, it cost you a LOT less to sell the additional apples than the one you sold the other day.
An economy of scale is the idea that as you do more business, a lot of the costs become cheaper the more you do so you can make more profit.
Latest Answers