Chapter 6 - Large-scale production

Abstract

This chapter discusses the large-scale production. The economies of large-scale production—called for short economies of scale— may be either internal or external. Internal economies are those that are open to a single factory or a single firm independently of the action of other firms. They result from an increase in the scale of output of the firm and cannot be achieved unless output increases. External economies are those that are shared in by a number of firms or industries when the scale of production in any industry or group of industries increases. They are not monopolized by a single firm when it grows in size, but are conferred on it when some other firms grow larger. Internal economies can be grouped together under five headings: technical, managerial, commercial, financial, and risk-spreading. The economies relate to particular commodities: the bigger the output, the greater the efficiency with which a single commodity can be produced. Economies of scale, and the consequent savings in costs, may be reaped at the level of a single plant, or in a group of plants owned by a single firm or, if they are external economies, they may involve a whole industry.