When economies of scale exist,
A)production costs per unit increase as output expands.
B)production costs per unit decline as output expands.
C)total production costs decrease.
D)total production costs increase.

Question

Quizplus · Accepted Answer

Economies of scale refer to the cost advantages that enterprises obtain due to size, output, or scale of operation. When economies of scale exist, production costs per unit decline as output expands. This is because as output increases, fixed costs, such as machinery and equipment, are spread over a larger number of units, leading to lower average fixed costs. Additionally, there may be opportunities to take advantage of bulk discounts on raw materials and transportation costs. Therefore, larger firms can produce and sell goods at a lower cost per unit compared to smaller firms.

When Economies of Scale Exist