Economics • Economic BasicsEasy
What is meant by 'Economies of Scale' in production economics?
A. Increase in long-run average costs as output increases
B. Reduction in long-run average costs as output increases✓ Correct Answer
C. Constant returns to scale across all industries
D. Rise in fixed costs per unit of production
💡 Solution & Explanation
Economies of scale occur when long-run average total costs decline as the scale of production increases, driven by factors such as specialized labor, managerial efficiencies, and bulk purchasing discounts. This production phenomenon explains why large firms often undersell smaller competitors in certain industries. Microeconomic principles regarding cost curves are foundational concepts tested in economics papers.
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