When you are working in a company and your sales are gradually increasing, you may manufacture more units for selling more products. When large number of units can be produced in a large scale with less input costs then economies of scale can be obtained. It may also mean that if the company grows with the large number of production units, the costs can be decreased in the substantial manner.
Economies of scale can be obtained with the cost advantage that arises with the increased number of output. The economies of scale can occur due to the inversely proportion between the number of products produced and the fixed costs as these costs are distributed with large number of goods. The variable cost per unit can also be reduced in this case as the operational efficiency increases. There can be basically two types of economies of scale: the internal and the external. The internal economies of scale generate from within the company and the external one arises from the external factors such as the size of the industry.