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Economies of Scale - Why does profitability increase with sales?


In a retail business like Dominos, Big Bazaar or Lifestyle, profitability increases with scale because?

At scale retail businesses can increase their prices and charge more for every product sold - Incorrect
Lot of fixed infrastructure costs have been made upfront and and only a little new investment is needed for new customers - Correct
...................................................please explain

1 Answer(s)


When retail companies grow they have huge economies of scale because -
1) They can buy the same goods at lesser price per unit (since the quantity they are buying increases)
2) Use the same backend, logistics chain etc to sell more goods
So thereby revenue increases with much lesser increase in operating expense - hence profitability increases as well.

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