One of the most crucial principles used and evaluated by managers is the notion of economies of scale. This refers to __________.
A) increases in per unit costs as the volume of goods and services produced by a firm increases
B) decreases in per unit costs as the volume of goods and services produced by a firm increases
C) decreases in per unit costs as the volume of goods and services produced by a firm decreases
D) decreases in total costs as the volume of goods and services produced by a firm increases

Question

Quizplus · Accepted Answer

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 costs and the quantity produced. The greater the quantity of a good produced, the lower the per-unit fixed cost because these costs are spread out over a larger number of goods.

One of the Most Crucial Principles Used and Evaluated by Managers