As the volume of production in a firm increases, the average cost per unit decreases until some optimal volume of production is reached, after which the average costs per unit of production begin to rise because of diseconomies of scale.

Question

Quizplus · Accepted Answer

This statement accurately describes the concept of economies of scale, where as firms increase their production volume, they are able to spread their fixed costs over a larger number of units, resulting in a decrease in average cost per unit. However, once the firm reaches a certain size or production volume, it may begin to experience diseconomies of scale where costs per unit increase due to difficulties in managing a larger operation or reduced efficiency.

As the Volume of Production in a Firm Increases, the Average