It has been suggested that international firms enjoy greater economies of scale than domestic firms is due to________.

Question

BlackTom AI · Accepted Answer

Examining the statement about why international firms might enjoy greater economies of scale than domestic firms, let's evaluate each option in turn.
Option 1: 'reduction in fixed costs' — While economies of scale can involve spreading fixed costs over a larger output, this option is somewhat vague. Reduction in fixed costs per unit can occur, but the key driver for international firms is not simply fixed-cost reduction in isolation; it often hinges on access to larger markets and production synergies that come with operating internationally.
Option 2: 'subsidies from host-country governments' — Subsidies can lower costs and artificially enhance competitiveness, but subsidies are policy instruments rather than inherent economies of scale gained from being international. Relying on subsidies doesn't directly explain why economies of scale would be greater for international firms in general as a structural explanation.
Option 3: 'higher depreciation costs' — Higher depreciation costs would typically reduce, not increase, the attractiveness or the scale advantages. Depreciation is a cost accounting matter and does not create economies of scale; in fact, it could worse impact profitability per unit produced. This makes it an unlikely contributor to greater economies of scale for international firms.
Option 4: 'their access to global market' — This option points to a fundamental driver of international economies of scale: by selling into multiple and larger global markets, firms can increase output, utilize existing capacities more fully, and achieve lower average costs. Access to a global market enables higher production volumes, spreading fixed costs, achieving specialization, and leveraging worldwide supply chains, which are classic pathways to greater economies of scale for multinational firms.
In summary, option 4 aligns with the standard explanation that international firms gain economies of scale primarily through expanded demand and production scale afforded by the global market, while the other options either misstate the mechanism or describe factors that do not inherently produce the same broad, scale-driven efficiencies.

It has been suggested that international firms enjoy greater economies of scale than domestic firms is due to________.Single choice

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