Easy1 markMultiple Choice
AQA GCSE · Question 03 · How markets work
A firm can reduce its average costs in the long run by making effective use of a large machine. This is an example of
A firm can reduce its average costs in the long run by making effective use of a large machine. This is an example of
Answer options:
A.
financial economies of scale.
B.
purchasing economies of scale.
C.
risk-bearing economies of scale.
D.
technical economies of scale.
How to approach this question
Consider the different types of economies of scale. The question specifically mentions a 'large machine', which is a piece of capital equipment used in the production process. Match this to the correct category.
Full Answer
D.technical economies of scale.✓ Correct
The correct answer is D. Technical economies of scale arise from the use of more efficient production techniques and capital equipment, such as large machinery, which can lower the average cost per unit of output.
Economies of scale are the cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output decreasing with increasing scale. Technical economies of scale are achieved through the use of large-scale capital machinery or production processes. A large machine can produce more output for a given amount of input, thus lowering the average cost of production.
Common mistakes
Mixing up the different types of economies of scale. For example, confusing technical economies with purchasing (bulk buying) or financial (cheaper loans) economies.
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