Real and Pecuniary Economies

Internal economies can be classified as Real Economies and Pecuniary Economies. Real economies arise from reduction in the physical quantity of inputs.

These may be economies in (i) production (ii) marketing or salesmanship (iii) managerial due to specialization, decentralization in decision-making and mechanization e.g. computerization and (iv) transport and storage economies. Pecuniary Economies arise from lower prices for inputs, lower interest rates, lower rates for advertising, lower transport costs paid by bigger firms.

Internal Economies (Its effect)

On y-axis cost and x-axis quantity of output. Due to the internal economies of scale the cost of production per unit will go on decreasing up to a minimum point viz M. that is ‘ON’ cost is the minimum possible cost. Hence the firm will be beneficial to produce quantity of output

On the other hand the LAC may start increasing due to internal economizes of scale. that is an the right hand side of ‘NM’ cost.