TAMIL NADU MODEL SCHOOLS

Subject: Economics

Class : 11

English Taxonomy ID:

Tamil Taxonomy ID:

English title: Economies of Scale

Tamil title:

Chapter Name English: Production Analysis

Chapter Name Tamil:

GLOSSARY

Economies of Scale

Diseconomies of Scale

Costs
S.No English Script Text On Screen Tamil Tamil Text Animation
Script On Screen Instruction

1
Priya: Rahul, I saw in the
book how large companies
can sell their products
cheaper than small
businesses. How is that even
possible?

Rahul: That’s a great

observation, Priya! What you
noticed is due to a concept in
economics called
"Economies of Scale."
Simply put, when companies
grow and produce more, the
cost to make each unit goes Text On screen:
down. Scale of
production is the
Let’s break it down. The total quantity of
Scale of Production refers to goods or services
how much a company a company
produces. When this scale produces, which
increases, companies can affects its
reduce their cost per unit. efficiency and cost
This is because some costs per unit
get divided across a larger
number of units.

Priya: So, if I bake one cake

and it costs ₹100, baking ten
cakes together won’t cost
₹1000?

Rahul: Exactly! It might cost

only ₹600 or ₹700, because
the ingredients, electricity,
and effort are shared. That
saving is what we call
economies of scale.

2
Rahul: Internal Economies of
Scale come from within the
company. As a firm grows, it
becomes more efficient.
Here are the main types:
1. Technical
1. Technical Economies: Economies:
○ Large firms can Large firms use
afford modern, advanced
automated machines for
machinery. faster production
○ They can also
invest in
Research and
Development
(R&D).
○ Example: A
textile company
installs
automated
stitching
machines that
work faster
than manual
labor.
2. Financial Economies: 2. Financial
○ Big firms can Economies:Big
raise funds companies get
easily from cheaper and
banks and easier loans.
through shares.
○ Lenders and
investors trust
them more, so
they get loans
at lower
interest rates.
3. Managerial 3.Managerial
Economics: Economics:Speci
○ Large firms can alized managers
hire specialized make operations
managers for more efficient.
finance,
marketing, HR,
etc.
○ This division of
responsibility
improves 4. Labour
efficiency and Economies:Work
reduces ers focus on
mistakes. specific tasks to
4. Labour Economies: boost productivity.
 ○ As firms grow,
they can use
division of 5.Marketing
labour. Economies:Firms
○ Workers get buy in bulk and
trained in advertise to more
specific tasks, people.
increasing
productivity and
quality.
5. Marketing Economies:
○ Bigger firms
can buy raw
materials in
bulk at
discounted
prices. 6.Economies of
○ They can Survival:
advertise more
widely and Multiple products
reach distant help reduce
markets easily. business risk.
6. Economies of
Survival:
○ They can
diversify their
products.
○ If one product
fails, others can
still earn
revenue. This
reduces risk.

Priya: So a big company can

actually work more smoothly
and at lower cost?

Rahul: Yes! That’s the whole

point of internal economies
of scale.

3
Priya: And what about
external economies of scale?

Rahul: Those are the

benefits a company enjoys
due to growth and
improvements outside the
company, often from the
environment or government.
Like:
Transport
● Transport Improvements:
Improvements: Better transport
speeds up
- Better roads, deliveries
railways, and ports
mean faster delivery
of raw materials and
products. Banking and
Financial
● Banking and Financial Services: Banks
Services: open nearby
branches, making
finance easy for
companies.
- Banks set up
branches in industrial
areas, making it easy
for companies to
handle finances.

Township
● Township
Development:
Development:
Nearby housing
○ Residential
areas near reduces worker
industries make absences.
it easy for
workers to live
close by,
reducing
absenteeism.

Communication
● Communication Facilities:
Facilities:
○ Internet and Improved
telephone communication
networks keeps companies
improve, connected.
helping
companies stay
 connected.

Priya: So companies benefit

even without doing anything?

Rahul: Yes, because the

overall business environment
supports their growth.

4
Rahul: I will explain the
concept very clearly with one
examples of economies of
scale, have you heard of
SIPCOT – the State
Industries Promotion
Corporation of Tamil Nadu?

Priya: I’ve heard of it! But

what happens there?

Rahul: SIPCOT develops

large industrial parks across
Tamil Nadu. Many factories
are set up together in one
area. They all get:

● Shared infrastructure
like roads, water, and
electricity
● Good transport
facilities
● Banking, internet, and
office space
● Common waste
treatment facilities
● Low setup cost
because everything is
planned in advance

This is a classic example of

external economies of scale.

Priya: That makes sense!

Many companies save
money by sharing resources.
5
Priya: But can growing too
big cause problems?

Rahul: Yes. That’s called

Diseconomies of Scale.
When a firm becomes too
large, costs can start rising
again.

There are two types: Internal

Diseconomies:
1. Internal Diseconomies Too big = complex
of Scale: management, poor
communication,
-Management becomes too slow decisions.
complex.

-Communication breaks
down.

-Employees feel lost, and External

coordination reduces. Diseconomies:
-For example, a company Too many firms =
with too many departments traffic, shortages,
may face delays in decision- higher costs,
making. pollution.

2. External
Diseconomies of
Scale:

-These come from the

environment.

-Too many firms in one

area ,means:

● Traffic congestion
● Shortage of water and
electricity
● Higher rent and land
prices
● Pollution

Priya: Oh no! So growing too

much is also risky?
 Rahul: Yes. The key is to
grow smartly just enough to
enjoy the benefits but not so
much that problems begin.

6
So, Friends, large companies
can lower their costs and
offer better prices by
producing more and taking
advantage of both internal
and external economies of
scale. But if they grow too
much, new challenges can
appear. The real trick is to
expand just enough to get
these benefits without
running into big problems.
So, friends, I hope you’re
now clear about this concept.
Let’s meet again soon with
another interesting topic in
our next video!