Economies of scale exist when a firm's long-run average cost falls as its:
Correct answer: B. Scale of production increases
- A. Market price increases
- B. Scale of production increases
- C. Variable cost decreases
- D. Profit margin increases
Explanation
Economies of scale mean that larger-scale production lowers long-run average cost. They result from factors such as specialization or spreading fixed expenses over more units, not simply from a higher market price.
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Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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