Final answer:
The cost function shows no economies of scale because the cost per unit remains unchanged as the production level increases from one unit to two units.
Step-by-step explanation:
The cost of producing one unit of a good is $200, and the total cost of producing two units is $400. Since the cost per unit does not decrease as production increases from one unit to two units, the cost function suggests that there are no economies of scale. Economies of scale occur when an increased level of production leads to a lower average cost per unit.
In contrast, if the cost per unit had decreased when production increased, it would indicate economies of scale. For example, a small factory producing 1,000 units at an average cost of $12 per unit exhibits economies of scale if a medium factory produces 2,000 units at a reduced average cost of $8 per unit. Similarly, a larger factory producing 5,000 units at an even lower average cost of $4 per unit also shows economies of scale.
Economies of scale are cost advantages reaped by companies when production becomes efficient. Companies can achieve economies of scale by increasing production and lowering costs. This happens because costs are spread over a larger number of goods. Costs can be both fixed and variable.