Of the basic business principles, economies of scale has the greatest impact on profitability over any other business principle. As an enterprise’s investment is spread over higher volume the cost per unit of production decreases. The differential between sales price and cost changes add to the overall profitability for the company.
Economy of Scale
A business principle that basically states that as the volume increases, the contribution margin or profit increases at a faster rate per unit of measurement. Normally affiliated with processes, especially manufacturing, this theory is not pure and therefore, application must be well conceived. For a more in-depth analysis, read: Economies of Scale.
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