Final answer:
At a low level of output, small businesses typically encounter higher production costs due to their inability to realize economies of scale, which allow larger businesses to reduce the cost per unit as output increases.
Step-by-step explanation:
At a low level of output for small businesses in retail trades and light manufacturing industries, one typically encounters higher production costs rather than economies of scale. Economies of scale occur when as the quantity of output increases, the cost per unit decreases. However, at low levels of production, small businesses are not able to benefit as much from economies of scale due to their limited output.
In contrast, large businesses can take advantage of economies of scale, which is beautifully exemplified by large "warehouse stores" like Costco or Walmart, where a larger factory produces at a lower average cost than a smaller factory. This advantage stretches over a larger quantity of output due to alterations in technology, such as the assembly line, allowing large-scale producers to gain an advantage over smaller ones.
Therefore, at low levels of output, small businesses have not yet reached the production scale where the cost-saving benefits of economies of scale kick in, leading to relatively higher production costs compared to larger producers that operate at a level where economies of scale can be realized more fully.