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

Question

BlackTom AI · Accepted Answer

Economies of scale occur when a firm’s per-unit (average) cost falls as it expands output.

1) Relevant knowledge points and concepts
- Long-run: all inputs are variable (no fixed costs). Economies of scale are a long-run concept.
- Long-run average cost (LRAC) = Long-run total cost (LRTC) / Quantity (Q).
- Economies of scale mean LRAC declines as Q increases (due to specialization, bulk buying, spreading overhead, etc.).
- Distinguish from short-run concepts: average fixed cost falling is simply spreading fixed costs over more units; rising marginal cost is a short-run consequence of diminishing marginal product.

2) Step-by-step reasoning
- The textbook definition: economies of scale = declining long-run average cost as output rises.
- If total cost rises less than proportionately with output, average cost falls.

3) Calculation / intermediate steps (simple numerical illustration)
- Suppose LRTC at Q = 100 is $1,000 → LRAC = 1,000 / 100 = $10 per unit.
- If output doubles to Q = 200 and LRTC rises to $1,800 (less than double), LRAC = 1,800 / 200 = $9 per unit.
- Average cost fell from $10 to $9 as output increased → economies of scale.

4) Why the correct answer is correct
- Option c explicitly states LRAC declines as output increases, which matches the formal definition and the algebraic/numeric demonstration above. In the long run, lower LRAC with higher Q is the hallmark of economies of scale.

5) Why the other options are incorrect
- a: “Fixed costs start to fall” — fixed costs do not fall with output; average fixed cost falls in the short run but that is not the full concept of economies of scale (and fixed costs are not variable in the short run).
- b: “Marginal costs begin to rise” — rising marginal costs are typically a short-run phenomenon (diminishing marginal product) and indicate diseconomies, not economies of scale.
- d: “Long-run total costs decline” — total cost cannot sensibly decline as output increases; total cost typically rises with Q (though less than proportionately), so this is incorrect wording.

6) Conclusion
The correct choice is c. This matches the provided answer: "c. A situation in which long-run average costs decline as a firm increases output."

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

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