Large firms in an industry have cost advantages over small firms in same industry.Explain condition for this statement to be true. cost advantage

Large firms tend to have cost advantage over smaller firms engaged in supplying the same product because of the economy of scale enjoyed by larger firms.

Economy of scale refers to the reduction in per unit cost of a product because of the economies achieved because of higher level of production. Such economies of scale my accrue to a firm due to various factors such as higher utilization of manpower and capital equipment, lower raw material prices because of quantity discounts, the fixed overhead costs getting distributed over a larger production, and use more economical mass production technology.

However it must be noted that not all industries offer equal scope for economy of scale. Also for any given product there is a limit to which economy of scale can be achieved. Raising production beyond an optimum level can increase per unit cost.