Horti-Business Management (2+0)

Economies of scale

• Economies of scale refer to the benefits accrued to the farm on account of expansion of production capacity /large scale production. Economies of scale may be classified as real and pecuniary economies of scale or internal and external economies of scale.
Real and Pecuniary Economies of Scale

1. Real Economies of scale: refers to reduction in physical quantities of input, like raw materials, labour etc., per unit of output when the size of the firm increases. For example labour economies are achieved when there is training, specialization or automation.
2. Pecuniary Economies of scale: refers to paying low prices for raw materials / inputs etc., because of buying in large quantity or bulk buying in large quantity or bulk buying.
Internal and External Economies of Scale

1. Internal Economies is a condition which brings about a decrease in the LRAC of the firm because of the changes happening within the firm. Mechanization of operations
2. External Economies is a condition which brings about a decrease in the LRAC of the firm because of the changes happening outside the firm. Eg. Taxation policies of the Government.