According to theory, economic growth may be achieved when economies of scale is realized; this is usually attained through specialization. Adam Smith identified specialization and division of labor in 1763, in the beginning of his book entitled, “An inquiry into the Nature and Causes of the Wealth of Nations.” Adam Smith, considered the father of modern economic theory, identified the division of labor and specialization as the two key ways to achieve a larger return on production. Smith said that an increase in specialization in the use of labor becomes more achievable as a business increases in size because hiring more workers means that jobs can be divided and subdivided, which means each worker will have less tasks to perform. This enables the worker to concentrate on the task in which they have developed special skills. Hence, through such efficiency, time and money could be saved while production levels increase. The problem facing smaller businesses is many workers may spend a good portion of their time performing unskilled tasks or multiple tasks, leading to higher production costs due to inefficiency. However, with working fewer tasks, workers can become even more proficient and skilled at completing those tasks; concentrating on one task, causes the workers to become highly efficient at their task. In addition, greater labor specialization eliminates the loss of time that occurs whenever a worker shifts from one task to another.

Using specialization to achieve economies of scale, large scale producers often are able to supply consumers with a good at a substantially lower cost than a small business could produce it. Also, economies of scale increase the gains from trade that could not be achieved simply through self-sufficiency or small scale production. In addition to Labor Specialization, Managerial Specialization also improves efficiency, and occurs when a large company achieves economies of scale by enabling one person to supervise a larger number of employees for the same cost.

In addition to specialization and the division of labor, within any company there are various inputs that may result in economies of scale by larger firms when producing a good or service. These inputs include: lower input costs due to volume buying discounts, spreading of costly inputs (research. advertising, etc.), specialized inputs (machinery and labor), better techniques and organizational inputs (clear cut chain of command), and learning inputs (with time learning processes related to production, selling, and distribution can result in improved efficiency with more practice). In addition to internal economies of scale, external economies of scale can also be realized from the above-mentioned inputs as a result of the company’s geographic location.