A company that sells dairy products purchases large quantities of milk from the local dairy farms. Since the quantity purchased is very high, the company is able to demand and get price concessions from the dairy farms. The company prices its dairy products at a lower rate than its competitors. The greater quantity of products sold compensates for the low price. This is an example of:
A) economies of scale.
B) economies of supply.
C) economies of demand.
D) economies of distribution.
E) economies of cost.

Question

Quizplus · Accepted Answer

Economies of scale occur when a company reduces costs per unit due to increased production, as seen here with the company purchasing large quantities of milk and selling products at a lower price.

A Company That Sells Dairy Products Purchases Large Quantities of Milk