Editing Economies of scale (section)

==Overview==
The simple meaning of economies of scale is doing things more efficiently with increasing size.<ref>
{{cite book |title      = The Visible Hand: The Management Revolution in American Business
 |last       = Chandler
 |first      = Alfred D. Jr.
 |date       = 1993
 |publisher  = Belknap Press of Harvard University Press
 |isbn       = 978-0674940529
 |page       = [https://archive.org/details/visiblehandmanag00chan/page/236 236]
 |url        = https://archive.org/details/visiblehandmanag00chan/page/236
}} Chandler uses the example of high turn over in distribution.
</ref> Common sources of economies of scale are [[Purchase|purchasing]] (bulk buying of materials through long-term contracts), managerial (increasing the specialization of managers), financial (obtaining lower-[[interest]] charges when borrowing from banks and having access to a greater range of financial instruments), [[marketing]] (spreading the cost of advertising over a greater range of output in [[media market]]s), and technological (taking advantage of [[returns to scale]] in the production function). Each of these factors reduces the [[long run average cost]]s (LRAC) of production by shifting the [[cost curve|short-run average total cost (SRATC) curve]] down and to the right.

Economies of scale is a concept that may explain patterns in international trade or in the number of firms in a  given market. The exploitation of economies of scale helps explain why companies grow large in some industries. It is also a justification for [[free trade]] policies, since some economies of scale may require a larger market than is possible within a particular country—for example, it would not be efficient for [[Liechtenstein]] to have its own carmaker if they only sold to their local market. A lone carmaker may be profitable, but even more so if they exported cars to global markets in addition to selling to the local market. Economies of scale also play a role in a "[[natural monopoly]]". There is a distinction between two types of economies of scale: internal and external. An industry that exhibits an internal economy of scale is one where the costs of production fall when the number of firms in the industry drops, but the remaining firms increase their production to match previous levels. Conversely, an industry exhibits an external economy of scale when costs drop due to the introduction of more firms, thus allowing for more efficient use of specialized services and machinery.

Economies of scale exist whenever the [[total cost]] of producing two quantities of a product X is lower when a single firm instead of two separate firms produce it. See [[Economies of scope#Economics]].

:<math> TC((Q_1 + Q_2)X) < TC(Q_1X) + TC(Q_2X)</math>