Economies of scale exist when the increase in the output is proportionally more than the increase in the input. Producing a commodity slightly different from the commodity produced by the competitor is called product differentiation. Constant returns to scale refers to the same amount of output increase with the increase within the factors of production. External economies of scale refers to a reduction in the average cost of a firm in conjunction with the increase within the size of the industry. Internal economies of scale refers to a reduction in the average cost of a firm that is peculiar to the increase within the scale of the firm itself.