Strategy
Economies of scale
Cost per unit falls as volume rises.
Last reviewedWhat does Economies of scale mean?
Economies of scale mean the average cost per unit falls as a business produces more, because fixed costs are spread over more units, larger buyers get better prices, and work can be more specialized. They have limits: past some size, coordination costs can make average cost rise again (diseconomies of scale).
Where does it come up in case interview prep?
- Cost structures, margins and capital intensity across industriesLesson in How industries work: the toolkit
- Industry primers: retail, consumer goods, banking, telecomLesson in Business basics for non-business learners
- Revenue models, cost structure, unit economics and operationsLesson in Pharma, biotech and medical devices
- Main players, trends 2024 to 2026, regulation and casesLesson in Healthcare providers and payers
- How retail works and makes moneyLesson in Retail
- How e-commerce and marketplaces make moneyLesson in E-commerce, marketplaces, and quick commerce
- How consumer goods companies make moneyLesson in Consumer packaged goods (FMCG)
- How restaurants and food service make moneyLesson in Restaurants and food service
Related terms
- Economies of scopeCost falls when related products share resources.
- Fixed costA cost that stays the same when volume changes, within a normal range.
- Barriers to entryWhat makes it hard for new competitors to enter a market.
- Switching costsThe cost or effort for a customer to change supplier.
- Network effectsA product becomes more valuable as more people use it.
- Competitive advantageWhat lets a firm earn more than its rivals over time.
- Vertical integrationOwning more stages of your own supply chain.
- Horizontal integrationCombining with firms at the same stage, often competitors.