Managerial economies of scale are a form of efficiency benefit from economies of scale. They occur when organizations have a large amount of money and therefore employ significant amount of personnel. These people can be employed as managers therefore creating a large surplus and supply of managers in the firms. This increases the competency, skills and human resource of the company. This is a form of specialisation and division of labour which is specifically employed by firms to supervise systems and business processes. Investment in better quality management increases the communication base, skill base and the creativity in the organization. Aside from this the productivity of the company increases and the per unit costs decrease with the increasing productivity.
The analysis of the companies according to their structure and size dictates the economies of scale. At the micro level the economies of scale are concentrated within the organization and the effect of these economies of scale internal to the organization is identified. The efficiency through the economies of scale occurs with the increase in specialization and number of labour employed in the firm. The higher degree of specialization results in the firm being more efficient in its pursuits.
“The traditional way of interpreting the advantages of large scale is that which, following Smithian lines, concentrates on specialization economies. The increase in production volume permits the development of an organizational base increasingly able to exploit the advantages which emerge from specialization of labor. In this context economies of scale trace their origins to the growth in work productivity, the fruit of an increasingly more specific progressive division of labor so that each phase and level of the production process wholly employs available resources.” (Tommaso & Dubbini, 2000)