Advantages
When firms form clusters of economic activity, there are particular development strategies that flow in and throughout this area of economic activity. This helps to accumulate information and the flow of new and innovative ideas among firms for the achievement of what economists call increasing returns to scale. With the establishment of a firm, there is always a fixed or average cost of production for the firm based on supplies needed (labor, capital, rent etc.) for the production of the firm. When this average cost of production falls as the result of the increased total output of a product, that indicates the presence of economies of scale; the terms "increasing returns to scale" and "economies of scale" may be used interchangeably.
Increasing returns to scale, or economies of scale, are internal to a firm and may allow for the establishment of more of the same firm outside the area or region. Economies of scale external to a firm are the result of spatial proximity and are referred to as agglomeration economies of scale. Agglomeration economies may be external to a firm but internal to a region. It is important to note that these increasing returns to scale are a major contributing factor to the growth of cities. Agglomeration economies exist when production is cheaper because of this clustering of economic activity. As a result of this clustering it becomes possible to establish other businesses which take advantage of these economies without joining any big organization. This process may help to urbanize areas as well.
Read more about this topic: Economies Of Agglomeration
Famous quotes containing the word advantages:
“... is it not clear that to give to such women as desire it and can devote themselves to literary and scientific pursuits all the advantages enjoyed by men of the same class will lessen essentially the number of thoughtless, idle, vain and frivolous women and thus secure the [sic] society the services of those who now hang as dead weight?”
—Sarah M. Grimke (1792–1873)
“If we help an educated man’s daughter to go to Cambridge are we not forcing her to think not about education but about war?—not how she can learn, but how she can fight in order that she might win the same advantages as her brothers?”
—Virginia Woolf (1882–1941)
“... there are no chains so galling as the chains of ignorance—no fetters so binding as those that bind the soul, and exclude it from the vast field of useful and scientific knowledge. O, had I received the advantages of early education, my ideas would, ere now, have expanded far and wide; but, alas! I possess nothing but moral capability—no teachings but the teachings of the Holy Spirit.”
—Maria Stewart (1803–1879)