<P> In microeconomics, economies of scale are the cost advantages that enterprises obtain due to their scale of operation (typically measured by amount of output produced), with cost per unit of output decreasing with increasing scale . </P> <P> Economies of scale apply to a variety of organizational and business situations and at various levels, such as a business or manufacturing unit, plant or an entire enterprise . When average costs start falling as output increases, then economies of scale are occurring . Some economies of scale, such as capital cost of manufacturing facilities and friction loss of transportation and industrial equipment, have a physical or engineering basis . </P> <P> Another source of scale economies is the possibility of purchasing inputs at a lower per - unit cost when they are purchased in large quantities . </P>

When does a firm experience economies of scale