Economic scale effect: Economics of scale at the plant level refer to unit cost reductions achieved through mass production techniques. The economic scale effect relates to the input and output relationship. The classic example of such economies is Ford’s Model T automobile. The world’s first mass-produced car, the Model T-Ford, was introduced in 1923. Until then it had cost Ford approximately $ 3000 (in 1958 dollars) to build and assemble an automobile. By introducing mass production techniques, the company achieved greater division of labor (i.e. splitting assembly into small, repeatable tasks) and specialization, and reduced the cost of manufacturing cars to less than $900 per unit (in 1958 dollars) at large output volumes. These may three types;
Increasing
Decreasing
Constant
