Economies and diseconomies of scale are of two types- external andinternal. Internal economies and diseconomies are those which a firm reaps as a result of its own expansion. Conversely, external economies and diseconomies are those that a firm accrues as a result of the growth of industry as a whole. They are external since they accrue to the firms from outside.

The internal economies and diseconomies of scale affect the shape of long run average cost curve. Internal economies of scale cause long run average cost to fall, whereas internal diseconomies of scale causes the long run average cost to rise as output increases.

Contrariwise external economies and diseconomies of scale affect the position of both the long run and short run average cost curves. External economies shift down the cost curve whereas external diseconomies shift up the cost curve.