What is the meaning of "Benefit of scale"?

Question

What is the meaning of "Benefit of scale" ?

Could you please give me the definition, and examples.

Thanks.

Answer 1

If you try to make one item, all of the cost of operating the factory has to be tacked on to the price of that item.

But if you make a million, you can cut the price and still make a profit.

That price cut is the benefit of your large-scale production.

Answer 2

If the term you are referring to is the economics of scale then...

Economies of scale are the cost advantages that a firm obtains due to expansion.

Economies of scale can be enjoyed by any size firm expanding its scale of operation. The common ones are purchasing (bulk buying of materials through long-term contracts), managerial (increasing the specialization of managers), financial (obtaining lower-interest charges when borrowing from banks and having access to a greater range of financial instruments), and marketing (spreading the cost of advertising over a greater range of output in media markets). Each of these factors reduces the long run average costs (LRAC) of production by shifting the short-run average total cost (SRATC) curve down and to the right.

There are two typical ways to achieve economies of scale:

High fixed cost and constant marginal cost

Low or no fixed cost and declining marginal cost

If a company is currently in a situation with economies of scale, for instance, electricity, then as their initial investment of $1000 is spread over 100 customers, their AFC is 1000/100 = $10

If that same utility now has 200 customers, their AFC becomes  ... their fixed cost is now spread over 200 units of output and becomes 1000/200 = $5

Another common example is a factory. An investment in machinery is made, and one worker, or unit of production, begins to work on the machine and produces a certain number of goods. If another worker is added to the machine he or she is able to produce an additional amount of goods without adding significantly to the factory's cost of operation. The amount of goods produced grows significantly faster than the plant's cost of operation. Hence, the cost of producing an additional good is less than the good before it, and an economy of scale emerges