Economies and Diseconomies of Scale:

Economies and Diseconomies of scale are respectively, the "advantages" and "disadvantages" of large-scale production. The expression "advantages" is used to present benefits that help the firm to produce at reduced unit cost of production. They are referred to as economies of scale.

The word "disadvantages", on the other hand, means those things that lead to increases in the unit cost of producing larger output. These are referred to as diseconomies of scale.

The advantages and disadvantages can be grouped into internal and external economies and diseconomies of scale. Economies and diseconomies of scale are long run phenomena.

(a) Internal Economies of Scale

Internal economies of scale are the advantages or benefits that the firm enjoys as it expands its size or increases its scale of operation. These may result from technical, financial, managerial, marketing and welfare advantages enjoyed by the firm and are as such said to be firm specific.