Scale of production refers to the amount of factors (land, labour & capital) used, the quantities of products produced, and the techniques of production adopted by a producer. Production may be carried out on a small or large scale.
When a firm employs large quantities of factors i.e. labour, land and capital and produce large output, the scale of production is said to be large but when small quantities of factors labour, land and capital are used and small output is produced, the scale of production is small.
ECONOMIES OF LARGE SCALE PRODUCTION
Large Scale Production: A firm earns more profit when it operates on large scale production, thereby enjoying economies of large scale production. When a firm operates on a large scale of production, it per unit cost of production is reduced and productive efficiency is increased. Economies of large scale of production are of two variants, they are Internal Economies and External Economies.
TYPES OF ECONOMIES OF LARGE SCALE PRODUCTION
1) Internal Economies: Internal economies result when a firm increases it scale of output. The firms cost of production will be reduced and output will increase. Internal economies are available to a firm independently of the actions of the other firm.
i.) A firm will enjoy internal economies when it uses labour and machines to it maximum capacity. More output will be realized without paying more on labour or machine.
ii) Internal economies will arise when a firm specializes in the production of a particular commodity and breaks up the production process to be managed by different workers.
2) External Economies: External economies benefit all firms within the industry as the size of the industry expands. It arose in the following:-
i) Economies of Concentration: When an industry is concentrated in a particular area, skilled labour will be available to all the firms and the means of transportation and communication will be improved.
ii) Economies of Information: An industry is better positioned to carry out laboratory test than a single firm. Whatever invention or result realized can be shared among all the firms. An information centre can also be set up to publish journals.