Economies of scale occur when long-run average costs decline as output rises.

Question

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Economies of scale refer to the cost advantage experienced by a firm 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.

Economies of Scale Occur When Long-Run Average Costs Decline as Output