What are economies of scale and diseconomies of scale?
In economics, returns to scale and economies of scale are terms that are related and sometimes incorrectly used interchangeably. They explain what happens as the scale of production increases. Economies of scale and diseconomies of scale refer to an economic property of production that affects cost, if quantity of all input factors by some amount is enhanced. If costs increase proportionately, there are no economies of scale; if costs enhance by a greater amount, there are diseconomies of scale; if costs enhance by a lesser amount; there are positive economies of scale. When combined, economies of scale and diseconomies of scale lead to ideal firm size theory, which states that per-unit costs reduces until they reach a certain minimum, then enhance as the firm size increases further.