Define Internal Economies
Internal economies are those in production, those reductions in production costs, which accrue to the firm itself when it expands its output or enlarge its scale of production. Its are achieved through the ability and long experience of the entrepreneur. They attached to a specific business. Other entrepreneurs cannot benefit from them. These directly related with the output and arise from the use of modern technology i.e. new techniques of production which a firm in small scale either does not find it worthwhile to employ or it is impossible for them to adopt due to less financial responses.
Internal Economies May be of the Followings Topics:
Administrative and Managerial Economies
When a firm expands its output of increase the scale of production. It follows the belief of division of labor and creates special departments i.e. sales, accounts, marketing, production, cost, processing administration departments etc. specialists are employed e.g. sales manager, cont accountant, marketing manager etc, and as result production process works smoothly. The entrepreneur gives attention to more important jobs e.g. import and export problems, credit from bank and concession s from the government etc. the administrative expenditures do not increase proportionately with the output and thus the firm benefits.
Technical economies arise due to the fact that there is a perfunctory benefit in the use of large machines. It pertain to large size of establishment. It may occur due to large size of the plant because it requires less energy, less staff, and proportionately less cost of installing the plant. Dedicated persons can only engaged with large machinery and plant, therefore large scale manufacturer profit from specialists.
Marketing / Commercial Economies
The economies arise from the purchase of unprocessed material and sale of finished goods. When output of a firm increases it purchases large quantity of raw material and gets preferential by the firms they deal with e.g. freight concession, cheap credit and prompt delivery etc.
We can get entire benefit from most of the issue of production. When they used full competence. If less output produced it means that they not working according to their efficiency. This may be due to indivisibility e.g. if a machine has the capacity to produce 500 meters of cloth daily and only 300 meters of cloth produced. It means that it is not being used advantageously.
The large firms have better credit facilities like credit at cheaper rates, concessions from the government for credit.