Internal economies of scale refer to:

Internal economies of scale refer to the advantages that a firm experiences as it increases its production level, which leads to a decrease in the average cost per unit. When a firm grows, it can take advantage of various operational efficiencies, such as more efficient use of capital and labor, better bargaining power with suppliers, and improved technology.

For instance, as a firm produces more, it might spread fixed costs, like rent and salaries, over a larger number of units, which lowers the average cost per unit. Additionally, large firms may invest in specialized equipment or technologies that small firms cannot afford, further enhancing their productivity and cost efficiency.

This concept is crucial in understanding why larger firms can often compete more effectively in the marketplace compared to smaller firms, as they benefit from these internal advantages that reduce their costs.