<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> <P> The management thinker and translator of the Toyota Production System for service, Professor John Seddon, argues that attempting to create economies by increasing scale is powered by myth in the service sector . Instead, he believes that economies will come from improving the flow of a service, from first receipt of a customer's demand to the eventual satisfaction of that demand . In trying to manage and reduce unit costs, firms often raise total costs by creating failure demand . Seddon claims that arguments for economy of scale are a mix of a) the plausibly obvious and b) a little hard data, brought together to produce two broad assertions, for which there is little hard factual evidence . </P> <P> Some of the economies of scale recognized in engineering have a physical basis, such as the square - cube law, by which the surface of a vessel increases by the square of the dimensions while the volume increases by the cube . This law has a direct effect on the capital cost of such things as buildings, factories, pipelines, ships and airplanes . </P>

Who developed the theory of scale of the market