This is an economic principle stating that, as the volume of production increases, the cost of producing each unit decreases.
When more units of a good or a service can be produced on a larger scale, with less input costs, economies of scale (ES) are said to be achieved. This means that as a company grows and production units increase, a company will have a better chance to decrease its costs. According to theory, economic growth may be accelerated when economies of scale are realized.
There are two types of economies of scale:
External economies—the cost per unit depends on the size of the industry, not the firm.
Internal economies—the cost per unit depends on size of the individual firm.