Leaving Certificate Microeconomics Practice Test 2025 – The Comprehensive All-in-One Guide for Exam Mastery!

Question: 1 / 400

What are economies of scale?

Situations leading to increased costs as production scales up

Reductions in average costs with increases in production size

Economies of scale refer to the phenomenon where the average cost per unit of production decreases as the scale of production increases. This can happen for several reasons: as firms produce more, they can spread fixed costs, such as administration and machinery, over a larger number of units, which reduces the average cost per unit. Additionally, bulk purchasing of materials may lead to discounts, and increased production can enhance operational efficiencies, leading to lower variable costs.

This concept is fundamental in microeconomics because it explains how larger firms can achieve competitive advantages over smaller firms by reducing costs. Therefore, the answer highlights the beneficial aspect of increased production in terms of achieving lower average costs, making it a cornerstone of business strategy and economic theory.

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Higher prices for larger production runs

Increases in operational complexity as size grows

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