The benefits of large-scale business

Economies of scale are the cost advantage from business expansion. As some firms grow in size their unit costs begin to fall because of:

  • purchasing economies - when large businesses often receive a discount because they are buying in bulk
  • marketing economies - from spreading the fixed cost of promotion over a larger level of output
  • administrative economies - from spreading the fixed cost of management staff and IT systems over a larger level of output
  • research and development economies - from spreading the fixed costs of developing new or improved products over a larger level of output