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

Making a thing costs more than just the bill of materials, you also need to consider the upfront cost for the tooling to make the thing.

Let’s say a thing making machine cost $1,000,000, and it takes $5 of materials to make a thing.

The total cost of a thing making machine and 1000 things is $1,005,000.

cost per thing would be $1005

The total cost of a thing making machine and 1,000,000 things would be $6,000,000.

cost per thing would be $6