Telecom Book

Economies of scale are the factors that cause the average cost of producing something to fall as the volume of its output increases. Hence it might cost $3,000 to produce 100 copies of a magazine but only $4,000 to produce 1,000 copies. The average cost in this case has fallen from $30 to $4 a copy because the main elements of cost in producing a magazine are loaded at the front end of the production process. Economies of scale were the main drivers of corporate gigantism in the 20th century. They were fundamental to Henry Ford’s revolutionary assembly line and they are the spur to many mergers and acquisitions today.

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