Economies of scale arise from which of the following sources? Select one: a. Serving domestic and international markets from the same production facilities b. Serving only domestic markets c. Increasing fixed costs by limiting them to small volumes d. Bargaining with distributors to drive up the product costs
Question
Economies of scale arise from which of the following sources?
Select one:
a. Serving domestic and international markets from the same production facilities
b. Serving only domestic markets
c. Increasing fixed costs by limiting them to small volumes
d. Bargaining with distributors to drive up the product costs
Solution
The correct answer is a. Economies of scale arise from serving domestic and international markets from the same production facilities. Economies of scale refer to the cost advantages that companies obtain due to their scale of operation, with cost per unit of output generally decreasing with increasing scale as fixed costs are spread out over more units of output. When a company serves both domestic and international markets from the same production facilities, it can produce larger quantities of a product, leading to lower per-unit costs.
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