Economies of scale is an economic term describing a business model where the long-run average cost curve declines as production

increases, or in a simple example explaining the principal, where a manufacturing company saves money as it produces higher quanties of its product, as in all business areas, 'the more you buy, the more you save'. An example is that of a private soft drinks manufacturer. The more orders that the manufacturer recieves, the more savings it makes, as it will in turn get cheaper prices for the materials it needs to produce its drinks (e.g. plastic, aluminium, sugar) as it will be buying them in larger quantities and receiving discounts, the manufacturing company in turn would give its customers cheaper prices for the more orders for drinks they make for this very reason, as they will gain the discounts, they can pass a saving onto their customers, making themselves stronger, a more respected company from its suppliers as it is buying in higher volumes and its turnover becomes higher. All these factors contribute to the benefits of economies of scale.. Another example of this can be found in the telecommunications industry. To service a single phone in a town costs a huge amount of money. Lines must be laid, towers constructed, and other infrastructure purchased to hook the phone up to local and long-distance lines. When the company is servicing a thousand phones in the town, however, the cost per phone of all the infrastructure is significantly lowered as the lines are already laid and the infrastucture is set, so it makes sense for the telecoms company to have all of its lines/infrastucture to be used fully, rather than lay there redundant. Because the phone infrastructure is so costly for a small company to set up, it may be most efficient for the entire town to be served by a single phone company. This company would then be known as a natural monopoly. In fact, a natural monopoly as a result of economies of scale is exactly the contention made about AT&T prior to the 1974 United States Department of Justice antitrust suit against the company. Economies of scale are also present in businesses like software that have high fixed costs for marketing and development but a very low marginal cost for distribution. Naturally these lead to questions of monopoly
When more units of a good or a service can be produced on a larger scale, yet with (on average) less input costs, economies of scale (ES) are said to be achieved. Alternatively, this means that as a company grows and production units increase, a company will have a better chance to decrease its costs. According to theory, economic growth may be achieved when economies of scale are realized. Adam Smith identified the division of labor and specialization as the two key means to achieve a larger return on production. Through these two techniques, employees would not only be able to concentrate on a specific task, but with time, improve the skills necessary to perform their jobs. The tasks could then be performed better and faster. Hence, through such efficiency, time and money could be saved while production levels increased.

Economies of scale, in microeconomics, refers to the cost advantages that a business obtains due to expansion. There are factors that cause a producers average cost per unit to fall as the scale of output is

increased. "Economies of scale" is a long run concept and refers to reductions in unit cost as the size of a facility and the usage levels of other inputs