Large facilities offer economies of scale in facilities and materials handling systems; per-unit costs for these systems decrease as volume increases.

Question

Quizplus · Accepted Answer

Economies of scale refer to the cost advantage experienced by an entity when it increases its level of output. The advantage arises due to the inverse relationship between per-unit fixed cost and the quantity produced. The greater the quantity of output produced, the lower the per-unit fixed cost because these costs are spread out over a larger number of goods. Large facilities can spread their fixed costs of facilities and materials handling systems over more units of output, thus reducing the cost per unit.

Large Facilities Offer Economies of Scale in Facilities and Materials