IGNOU MCO 21 2026 - Explain economies of scale and diseconomies of scale and how these con

Question

Explain economies of scale and diseconomies of scale and how these concepts influence long-run production and cost decisions.

12 Feb 2026

Answer :

Word Count : 425

Economies of scale refer to the cost advantages that firms experience as they increase their production output. As a firm expands its scale of production, the per-unit cost of producing goods or services typically decreases. This occurs due to factors such as specialization of labor, mass production, bulk purchasing of materials, and more efficient use of resources. The two main types of economies of scale are internal and external economies of scale. Internal economies of scale are specific to the firm and result from improvements within the organization, such as better management techniques, technological advancements, and streamlined production processes. External economies of scale, on the other hand, arise from factors outside the firm, such as industry-wide improvements, the development of better infrastructure, or a more skilled labor force in a specific region. On the other hand, diseconomies of scale refer to the disadvantages that firms face as they continue to grow beyond an optimal size. As production increases, the per-unit cost of

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