When economies of scale exist,an increase in the level of output will lead to:

Question

Quizplus · Accepted Answer

Economies of scale refer to the cost advantages that a firm can enjoy due to an increase in the level of production or output. As the production volume increases, the average cost per unit decreases. This happens because the fixed costs get spread out over more units, and the variable costs decrease due to the efficiency gains achieved through specialization, mass production, and bulk purchases. Therefore, an increase in the level of output will lead to a decrease in cost per unit, not an increase. However, the total cost may still increase, but at a slower rate than the increase in output, leading to economies of scale. Hence, option A is correct. Option C is only partially correct, as the total cost may increase or decrease depending on the extent to which the decrease in cost per unit offsets the increase in fixed costs. Option B is incorrect, as it contradicts the definition of economies of scale. Option D is also incorrect, as it includes option C, which is not always true.

When Economies of Scale Exist,an Increase in the Level of Output