BUSINESS

Scale of production

The scale of production refers to the amount of factors used, the quantities of products produced, and the techniques of production adopted by a producer. As production increases with the increase in the quantities of land, labour and capital, the scale of production expands.

Production may be carried on a small scale or on a large scale by a firm. When a firm operates by using less capital and small quantities of other factors of production, the scale of production is said to be small. On the other hand, a firm using more capital and larger quantities of other factors is said to be operating on a large scale.

The scale of production of an industry expands with the increase in the number of firms in the industry, or/and with the increase in the size of the firms in it.

A firm expands its scale of production for the purpose of earning larger profits and thereby derives many economies of large scale production which, in turn, help it in lowering the costs of production and increasing its productive efficiency.

When the majority of firms enjoy the economies of large scale production, they are also available to an industry which comprises those firms. We discuss below the various economies of scale which accrue to a firm and an industry.