Question

Economies of scale: Question 1 options: A) are available to small firms but not to large firms due to management inefficiencies. B) are achieved when a firm reduces its average cost of goods as it produces more. C) can be avoided by purchasing supplies and raw materials in large quantities. D) help explain the success of small businesses.

Answer 1

The correct answer is option B.

Step-by-step explanation:

Economies of scale refer to the situation when a firm is able to reduce its average cost of production as it goes on increasing its level of output while the price of inputs is constant.

The average cost of production is the ratio of the total cost incurred and the total output produced. As the number of output goes on increasing after a certain limit, the average cost starts to decline.

The larger the firm the more it will be able to save the cost. That's the reason why large businesses are more successful.