Internal Economies of Scale

Internal Economies of Scale:

‘Internal economies of scale’ are the benefits enjoyed in the production unit. Such economies are enjoyed by a solitary firm independently of the action of the other firms. For illustration, one firm might enjoy the benefit of good management; another might have the benefit of more up-to-date machinery. There are five types of internal economies. They are:

1. Technical Economies:

Since the size of the firm is big, the availability of capital is more. Due to this, a firm can introduce up-to-date technologies; thus the raise in the productivity becomes possible. It is too possible to conduct research and development that will help to raise the quality of the product.

2. Financial Economies:

It is possible for large firms to float shares in the market for capital formation. Small firms have to borrow capital while big firms can purchase capital.

3. Managerial Economies:

Division of labor is the outcome of large scale production. Right person can be utilized in the right department only when there is division of labor. This will aid a manager to fix responsibility to each and every department and thus the productivity can be raised and the net production can be maximized.

4. Labor Economies:

Large Scale production paves the manner for division of labor. This is also termed as specialization of labor. The specialization will raise the quality and capability of the labor. As an outcome, the productivity of the firm raises.

5. Marketing Economies:

In production, the primary buyer is the producer who purchases the raw materials. Since the size is big, the quantity bought is bigger. This provides the producer a better bargaining power. He can also enjoy credit facilities. All such are possible since of large scale production. Purchasing is the primary function in marketing.

6. Economies of survival:

A big firm can contain many products. Even when one product fails in the market, the loss incurred in that product can be managed by the profit made from the other products.

 

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