What is Internal Economies of Scales: Discuss

Internal Economics

Internal economies are those economies in production, those reductions in production costs, which accrue to the firm itself when it expands its output or enlarge its scale of production. Internal economies are achieved through the ability and long experience of the entrepreneur.They are attached to a specific business. Other entrepreneurs cannot benefit from them. The internal economies are directly related with the output. Internal economies arise from the use of modern technology i.e. new techniques of production which a firm in small scale either does not find it worthwhile to employ or it is impossible for them to adopt due to less financial responses.

Internal Economies May be of the Followings Topics:

Administrative and Managerial Economies

When a firm expands its output of increase the scale of production it follows the belief of division of labor and creates special departments i.e. sales, accounts, marketing, production, cost, processing administration departments etc. specialists are employed e.g. sales manager, cont accountant, marketing manager etc, and as result production process works smoothly. The entrepreneur gives attention to more important jobs e.g. import and export problems, credit from bank and concession s from the government etc. the administrative expenditures do not increase proportionately with the output and thus the firm benefits.

Technical Economies

Technical economies arise due to the fact that there is a perfunctory benefit in the use of large machines. Technical economies pertain to large size of establishment. Technical economies may occur due to large size of the plant because it requires less energy, less staff, and proportionately les cost of installing the plant. Dedicated persons can only be engaged with large machinery and plant, therefore large scale manufacturer profit from specialists.

Marketing Economies/ Commercial Economies

The economies arise from the purchase of unprocessed material and sale of finished goods. When output of a firm increases its purchases large quantity of raw material and gets preferential by the firms they deal with e.g. freight concession, cheap credit and prompt delivery etc.

Indivisibility

We can get entire benefit from most of the issue of production when they are being used full competence. If less output is being produced it means that they are not working according to their efficiency. This may be due to indivisibility e.g. if a machine has the capacity to produce 500 meters of cloth daily and only 300 meters of cloth is being produced it means that it is not being used advantageously.

Financial Economies

They may arise due to the reason that large firms have better credit facilities i.e. credit at cheaper rates, concessions from the government for credit.