Question

Purchasing economies of scale, as a type of internal economies of scale, refer to:

A. The reduction in average costs achieved by producing a larger volume of goods
B. The advantages gained through efficient production processes
C. The cost savings achieved by buying inputs in large quantities
D. The benefits of specialized knowledge and skills within the organization

Answer 1

Purchasing economies of scale occur when a company achieves cost savings by buying inputs in bulk, allowing lower per-unit costs as production scales up, as seen in large retailers like Costco and Walmart.

Step-by-step explanation:

Purchasing economies of scale, as a type of internal economies of scale, refer specifically to the cost savings achieved by buying inputs in large quantities. This concept is pivotal for firms as they scale up production. As a company increases the quantity of output, they can leverage their buying power to negotiate better deals and lower per-unit costs for the raw materials and components necessary for production. This is inherently tied to the notion that a larger operation can assert more influence on suppliers and can benefit from discounts due to bulk purchasing, ideal for large warehouse stores such as Costco and Walmart which operate on this principle. These stores exemplify how larger factories have an advantage over smaller ones, with the ability to produce goods at a lower average cost.