Economies and Diseconomies of Scale in the Long Run

Lecture slides that separate the broad sense of economies of scale, anything that serves to minimise the average cost of production in the long run as the scale of output increases, from the narrow sense of those characteristics of a production process that raise average productivity as scale expands. Internal economies are worked through firm by firm, including risk bearing through the diversification of products, markets and methods of production, while external economies are shown to accrue to every firm in an industry, most clearly where an industry is localised in one area and all firms share its advantages. The second half treats internal diseconomies of technical, risk-taking, administrative, managerial and labour origin, and external diseconomies arising when competition among many firms in one location pushes up the price of raw materials and of the factors of production.