Economies of Scale

Firms achieve internal economies of scale when they are able to decrease average costs per unit of production as the size of their output grows. Economies of scale are known to be present when as output rises, long-run average cost falls. Assuming that there is enough demand for the output produced, the firm can increase its overall profitability by continuing to expand the business while lowering the per unit production costs. The slope of the LRAC curve slopes downward when economies of scale are present and therefore have been achieved by the firm.
Figure 1.0; Internal economies and…