Scale and scope economies, higher education

Economies of scale occur if the average (or unit) cost of producing an output falls as the volume of production expands. Universities can be seen to be producing (in their simplest form) graduates, and the unit cost of producing each graduate is likely to fall as student numbers rise, as they are taught in ever larger classes. These economies of scale are unlikely to continue indefinitely: as the organization becomes larger, complexity and bureaucracy from increasing processes to cope with higher production also rise to a point where the additional costs exceed any fall in unit costs of production from greater size. At some level of production, then, diseconomies of scale will set in. Economies of scale can be identified in the single-product case by examining the (long run) average and marginal cost curves. If the ratio of the former to the latter is greater (less) than unity, for a given production level, there are economies (diseconomies) of scale at that point.