I a unit is lower than the average

I found cost drivers in chapter five very interesting to read, there’s many factors that impact business operations, one of them is economic of scale, which refer to all the costs that been reduced as a result of increased total output of a certain product, it applies to verity of business level and organizations like manufacturing a unit or an entire business enterprise, it mainly happens when the output increases and the average cost start to fall, when a company marginal cost of services or producing a unit is lower than the average cost that’s when they experience economic of scale.A good example will be water companies they have to invest in large network of water pipes that will spread throughout the country therefore the fixed cost will be very high but since it will be distrusting water to an over 24 million houses, the average cost will go down therefore achieving economic of scale another good example in different area is bulk buying when a supermarket had a delivery of 200 boxes of juice the cost will be very high comparing when it buys a 10,000 boxes of juice where the marginal cost will be low since it will be paying for one driver keeping in mind it uses the same gas for the distance.


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