What term describes cost advantages arising from large-scale production?

What term describes cost advantages arising from large-scale production?

• A. Economies of Scale
• B. Dividends
• C. Decision Tree
• D. Market Development

Answer: (A)

Economies of scale describe cost advantages that come with producing at a larger scale. As output increases, fixed costs can be spread over more units, reducing the average cost per unit. There are also benefits from bulk purchasing, more efficient use of machinery and specialized labor, and learning effects that lower costs over time. Because of these factors, the per-unit cost falls as production grows. The other terms don’t describe this phenomenon: dividends are payments to shareholders, a decision tree is a decision-analysis tool, and market development is a growth strategy into new markets.

Economies of scale describe cost advantages that come with producing at a larger scale. As output increases, fixed costs can be spread over more units, reducing the average cost per unit. There are also benefits from bulk purchasing, more efficient use of machinery and specialized labor, and learning effects that lower costs over time. Because of these factors, the per-unit cost falls as production grows. The other terms don’t describe this phenomenon: dividends are payments to shareholders, a decision tree is a decision-analysis tool, and market development is a growth strategy into new markets.