Which term describes cost advantages from increasing production, leading to lower average costs per unit?

Which term describes cost advantages from increasing production, leading to lower average costs per unit?

• A. Purchasing Economies of Scale
• B. Marketing Economies of Scale
• C. Economies of Scale
• D. Transaction Costs

Answer: (C)

Economies of scale describe cost advantages that come when a business increases its production, causing the average cost per unit to fall. As output grows, fixed costs are spread over more units, machinery and processes can run more efficiently, and inputs can be bought in bulk at lower prices. These effects combine to reduce the cost per unit as production scales up. While there can be related benefits from buying inputs in bulk (purchasing economies of scale) or spreading marketing costs over more units (marketing economies of scale), the broad term for the overall reduction in average cost with higher output is economies of scale. Transaction costs, by contrast, are costs tied to participating in a market and aren’t driven by the level of production.

Economies of scale describe cost advantages that come when a business increases its production, causing the average cost per unit to fall. As output grows, fixed costs are spread over more units, machinery and processes can run more efficiently, and inputs can be bought in bulk at lower prices. These effects combine to reduce the cost per unit as production scales up. While there can be related benefits from buying inputs in bulk (purchasing economies of scale) or spreading marketing costs over more units (marketing economies of scale), the broad term for the overall reduction in average cost with higher output is economies of scale. Transaction costs, by contrast, are costs tied to participating in a market and aren’t driven by the level of production.