Economies of scale are best described as which of the following?
A)The average cost remains constant as output increases
B)The average cost increases as output increases
C)The average cost declines as output increases
D)The average costs are cheaper when a firm produces a wider variety of goods
E)The average cost curve takes the form of a U-shape

Question

Quizplus · Accepted Answer

Economies of scale refer to the phenomenon where the average cost per unit of output declines as the production scale increases. This is because fixed costs (such as capital investment, administration, research and development) can be spread over more units of production, leading to lower per-unit costs. As a result, producers can enjoy cost advantages that allow them to reduce prices, improve profitability, or both. The opposite phenomenon to economies of scale is diseconomies of scale, which occurs when average cost increases as output increases due to higher production costs, congestion, or communication difficulties. Therefore, Options A, B, D, and E are incorrect.

Economies of Scale Are Best Described as Which of the Following