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24 August, 14:10

When a firm experiences economies of scale When a firm experiences economies of scale, A. increasing output will lead to lower average costs ... '

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  1. 24 August, 14:17
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    A) Increasing output will lead to lower average costs

    Explanation:

    Economics of Scale:

    Refers to the idea of "As the output quantity production increases, the long run average cost per unit decreases".

    Example:

    Company A is large and produces 2 million perfumes per week and company B is small and produces 5 thousand perfumes per week. The average cost of producing 1 perfume for company A will be much lower than that of company B. This is due to

    a) Buy in bulk (company A buys more that's why it costs less)

    b) Technological aspect (Company A uses more cost effective methods of production)

    c) Managerial expertise
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