Question

Economies of scale may arise from which of the following activities? Choose all that apply

a.) Doubling promotional expenses to expand sales less than proportionately.

b.)increasing the scale of the business so that average total cost rises

c.)Having a larger retail space can expand sales more than proportionately.

d.) Government economic subsidies protect firms from competition to avoid losses.

Answer 1

Answer: option c

This is the process and concept of reducing average total cost (ATC) per unit by increasing the scale of production.

Option a) although the promotional expenses are doubled, it doesn’t increase sale heavily; therefore, the scale can’t be increased by this act. The option is not correct.

Option b) ATC must not increase but decrease in order to get economies of scale. The option is not correct.

Option c) This is correct, since the increase in space increases sale heavily; it gives favorable effect (lowering) in cost, because the total cost is divided by the increasing number of units of selling. Larger is better in this case.

Option d) Subsidy can’t create economies of scale; this is just a protection to the firms.