Define Economies of Scale.

Define Economies of Scale.

• A. The costs savings a business makes as they increase their level of production (When a business buys in bulk and get a cheaper price, this is achieving economies of scale)
• B. The difference between revenues and costs
• C. The process of improving product quality
• D. The concept of opportunity cost

Answer: (A)

Economies of scale are cost savings per unit that a business gains as it increases its output. As production grows, fixed costs are spread over more units, and bulk purchasing or more efficient use of machinery and processes lowers the average cost per unit. That’s why the idea of cost savings happening when production level rises best captures what economies of scale are. The other ideas describe different ideas: profit is revenues minus costs, improving quality is about making the product better, and opportunity cost is the value of the next best alternative foregone.

Economies of scale are cost savings per unit that a business gains as it increases its output. As production grows, fixed costs are spread over more units, and bulk purchasing or more efficient use of machinery and processes lowers the average cost per unit. That’s why the idea of cost savings happening when production level rises best captures what economies of scale are. The other ideas describe different ideas: profit is revenues minus costs, improving quality is about making the product better, and opportunity cost is the value of the next best alternative foregone.