<P> Economies of scale often have limits, such as passing the optimum design point where costs per additional unit begin to increase . Common limits include exceeding the nearby raw material supply, such as wood in the lumber, pulp and paper industry . A common limit for low cost per unit weight commodities is saturating the regional market, thus having to ship product uneconomical distances . Other limits include using energy less efficiently or having a higher defect rate . </P> <P> Large producers are usually efficient at long runs of a product grade (a commodity) and find it costly to switch grades frequently . They will therefore avoid specialty grades even though they have higher margins . Often smaller (usually older) manufacturing facilities remain viable by changing from commodity grade production to specialty products . </P> <P> The simple meaning of economies of scale is doing things more efficiently with increasing size or speed of operation . Economies of scale often rely on fixed cost which are constant and don't vary with output, and variable costs which can be effected with the amount of output . In wholesale and retail distribution, increasing the speed of operations, such as order fulfillment, lowers the cost of both fixed and working capital . Other common sources of economies of scale are purchasing (bulk buying of materials through long - term contracts), managerial (increasing the specialization of managers), financial (obtaining lower - interest charges when borrowing from banks and having access to a greater range of financial instruments), marketing (spreading the cost of advertising over a greater range of output in media markets), and technological (taking advantage of returns to scale in the production function). Each of these factors reduces the long run average costs (LRAC) of production by shifting the short - run average total cost (SRATC) curve down and to the right . </P> <P> Economies of the scale is a practical concept that may explain real world phenomena such as patterns of international trade or the number of firms in a market . The exploitation of economies of scale helps explain why companies grow large in some industries . It is also a justification for free trade policies, since some economies of scale may require a larger market than is possible within a particular country--for example, it would not be efficient for Liechtenstein to have its own car maker, if they only sold to their local market . A lone car maker may be profitable, but even more so if they exported cars to global markets in addition to selling to the local market . Economies of scale also play a role in a "natural monopoly". There is a distinction between two types of economies of scale: internal and external . An industry that exhibits an internal economy of scale is one where the costs of production falls when the number of firms in the industry drops, but the remaining firms increase their production to match previous levels . Conversely, an industry exhibits an external economy of scale when costs drop due to the introduction of more firms, thus allowing for more efficient use of specialized services and machinery . </P>

Economies of scale are most concerned with ____ costs
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