economy like the United States, Canada, Japan, or Western Europe, it is likely to use production technologies

that conserve on the number of workers and focuses more on machines. However, that same employer is likely

to use production technologies with more workers and less machinery when producing in a lower-wage

country like Mexico, China, or South Africa.

Economies of Scale

Once a firm has determined the least costly production technology, it can consider the optimal scale of

production, or quantity of output to produce. Many industries experience economies of scale. Economies of

scale refers to the situation where, as the quantity of output goes up, the cost per unit goes down. This is the

idea behind “warehouse stores” like Costco or Walmart. In everyday language: a larger factory can produce at a

lower average cost than a smaller factory.
176 7 • Production, Costs, and Industry Structure
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