Internal economies of scale will ________ average cost when output is ________ by ________.
A) reduce; increased; a firm
B) reduce; increased; the industry
C) increase; increased; a firm
D) reduce; reduce; the industry
E) increase; increased; the industry

Question

Quizplus · Accepted Answer

Internal economies of scale refer to cost advantages that a firm enjoys as it increases production. When output increases, fixed costs are spread over a larger production volume, resulting in a lower average cost per unit. Hence, internal economies of scale will reduce average cost when output is increased by a firm. The option (B) is not correct because the question is asking about the impact on a firm, not the entire industry. Options (C) and (E) are incorrect because in both cases, there is an increase in average cost, which is contrary to the concept of economies of scale. Option (D) is incorrect because it implies that average cost decreases when output is reduced, which is not true.

Internal Economies of Scale Will ________ Average Cost When Output