When economies of scale exist, what can we conclude?
A) Per unit production costs decline as output expands.
B) Marginal cost must decrease as output expands.
C) Per unit production costs remain constant as output expands.
D) Per unit production costs increase as output expands.

Question

Quizplus · Accepted Answer

Economies of scale refer to the phenomenon where per unit production costs decline as output expands. This happens because fixed costs are spread over a larger quantity of output, thus reducing the average fixed cost per unit. Additionally, larger output levels allow for more efficient use of resources, reducing the average variable cost per unit. Marginal cost may or may not decrease as output expands, depending on the nature of the production process.

When Economies of Scale Exist, What Can We Conclude