Sources of Economies of Scale
1. Purchasing
Firms might be able to lower average costs by buying the inputs required for the production process in bulk or from special wholesalers. By negotiating with suppliers for volume discounts, the purchasing firm takes advantage of economies of scale.
2. Managerial
Firms might be able to lower average costs by improving the management structure within the firm. The firm might hire better skilled or more experienced managers.
3. Technological
A technological advancement might drastically change the production process. For instance, fracking completely changed the oil industry a few years ago. However, only large oil firms that could afford to invest in expensive fracking equipment could take advantage of the new technology.
