... arise quite simply from an increase in the scale of production in the firm itself.' (Stanlake & Grant P.64) When a firm increasing the output and make the average cost lower. This firm experiences the economies of scale. Economies of scale only arise in long run because all factors are variable. In the theory of economies of scale, it assumes that unit cost may change as a firm change in size. Internal economies of scale can be divided into plant economies of scale and firm economies of scale. At plant level, it is also called technical economies because it can improve production efficiency through using machine to lower the average cost. Different firms use different machinery to produce their output. But sometimes when the machines are expensive and large productive capacity as more output produced, it can fully utilised the machine. So, average cost decrease. This is called The Principle ...

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