Question

Risk-bearing economies of scale refer to:

A. The cost savings achieved through efficient production processes
B. The reduction in average costs achieved by producing a larger volume of goods
C. The advantages gained through diversification and spreading of risks across a larger scale of operations
D. The benefits of specialized knowledge and skills within the organization

Answer 1

Risk-bearing economies of scale are advantages a company gains by diversifying and spreading risks across larger-scale operations, resulting in a reduction of overall risk.

Step-by-step explanation:

Risk-bearing economies of scale refer to the advantages a company gains through diversification and spreading its risks when operating at a larger scale. It is not about cost savings from production efficiency or the reduction of average costs with larger volumes of production directly but rather the spreading of risks that come with larger-scale operations. This could involve diversifying products, markets, or sources of raw materials. Offering a wide range of products or operating in numerous markets could mitigate the risk because if one product or market suffers a downturn, others might remain stable or even prosper, balancing out the losses. The idea is akin to financial portfolio diversification, where an investor spreads investment across various assets to reduce the overall risk of their investment portfolio. For businesses, risk-bearing economies of scale thus refer to a decrease in the overall risk faced by an enterprise as a result of increasing the scale and diversity of its operations.