Internal economies of scale
In an internal economy of scale, the advantages of increasing or expanding are enjoyed by the firm that has made the decision to do so. It will reduce the average cost of producing each unit of output as it is expanded. There are five main types of economies of scale:
Purchasing economies
As firms grow, they can buy their necessary resources to produce goods and services in bulk (buying a lot of an individual product, like 100,000 plastic straws instead of 20) from a supplier, and enjoy discounts by "bulk-buying".
Marketing economies
When advertising their products, the impact of a single advertising will have more output on a large firm than a small firm. Additionally, large companies can also use their own vehicles to transport goods and services to customers or shops and reduce the total cost.
Financial economies
Larger firms can benefit from lower interest rates when borrowing money because banks now that they are a big business that is financially stable and it is considered a safe investment. Banks also benefit from this because firms can leave shares as collateral which could gain a lot of value in the case of a large firm and it could sometimes even be more profitable that the firm doesn't repay their debt.
Technical economies
In large firms, machinery and highly productive workers can be hired, and research can be done because of their large financial resources available.
Risk-bearing economies
Large firms can reduce risk by selling to customers on different countries and offer a wider range of products so that, instead of selling one type of products which could suddenly lose customer demand, they can be safe that there will always be products with high demand that they are selling. Diversification means to produce a wide range of products and to expand into different consumer markets to reduce risk.
External economies of scale
Large firms can also share external economies of scale with other rival producers:
They can recruit people who were previously working in a company in the same industry and these people will already have a lot of experience on working on very similar products. Ancillary firms help large businesses close to them to grow and provide them with specialized equipment and services. There can be "joint marketing benefits", if two or more firms in the same area know for high quality products, the area will gain reputation as being a place where good quality products are made, for example, Germany. Firms can benefit from shared infrastructure: resources built on the area where firms of the same industry are co-located which they can all benefit from, such as better roads for transportation, or cheaper electricity costs.
Aerospace jet production
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