Which of the following is the best definition of economies of scale?

Question

BlackTom AI · Accepted Answer

Economies of scale occur when long-run average cost (LRAC) falls as output rises.

1) Relevant concepts:
- Long run: all inputs are variable; the firm can change plant size and technology.
- Average cost (AC) = Total cost (TC) / output (Q). LRAC is TC in the long run divided by Q.
- Economies of scale refer specifically to a decline in LRAC as Q increases, caused by factors such as specialization, bulk buying, better use of capital, and spreading of indivisible costs over more units.

2) Step-by-step reasoning:
- By definition, economies of scale describe behavior of average costs (per unit) as the firm expands. If LRAC declines when Q increases, the firm experiences economies of scale.
- Put another way, if doubling Q causes total cost to less than double, average cost falls. Mathematically, if TC(2Q) < 2·TC(Q), then LRAC(2Q) = TC(2Q)/(2Q) < TC(Q)/Q = LRAC(Q).

3) Example calculation (illustrative):
- Suppose some fixed setup costs that are effectively spread at larger scale: TC = 100 (setup) + 10Q (variable).
- At Q = 10: TC = 100 + 10·10 = 200 → AC = 200/10 = 20.
- At Q = 20: TC = 100 + 10·20 = 300 → AC = 300/20 = 15.
- AC falls from 20 to 15 as output doubles → economies of scale.

4) Why answer (a) is correct:
- (a) precisely states that long-run average costs decline as output increases, which matches the textbook definition of economies of scale.

5) Why other options are incorrect:
- (b) says fixed costs start to fall — fixed costs themselves typically do not fall simply because output rises; rather fixed costs are spread over more units (a per-unit effect), and in the long run fixed/variable distinction changes.
- (c) describes marginal costs rising — that is associated with diminishing marginal returns in the short run or diseconomies of scale, not economies of scale.
- (d) claims long-run total costs decline as output increases — total cost normally increases with output (though at a decreasing rate); economies of scale refer to average cost per unit declining, not absolute total costs falling.

Conclusion: The correct answer is (a). This matches the provided answer.

Which of the following is the best definition of economies of scale?单项选择题

类似问题

One advantage of monopoly firms is that