Economies of scale imply: (i) a continuously falling AC curve; (ii) a larger output is more efficient than a smaller output.
A)i and ii
B)i but not ii
C)ii but not i
D)neither i nor ii

Question

Economies of scale imply: (i) a continuously falling AC curve; (ii) a larger output is more efficient than a smaller output.
A)i and ii 
B)i but not ii 
C)ii but not i 
D)neither i nor ii

Quizplus · Accepted Answer

Economies of scale are the cost advantages that a firm enjoys as it increases production. As output increases, fixed costs can be spread over more units, resulting in lower average total cost (ATC), which is indicated by a continuously falling ATC curve. Also, larger output allows firms to employ more specialized machinery, reduce wastage, and negotiate better prices for raw materials, leading to higher efficiency than smaller output. Therefore, both statements (i) and (ii) are correct, and the best choice is A.

Economies of Scale Imply: (I) a Continuously Falling AC Curve;