A national grocery chain sets up a store in a small town. It sources most of its produce from the local farmers. Since it sources the produce in bulk, it demands discounts from the suppliers. The store passes some of these savings to the customers in the form of low prices for the products. The price is lower than what is offered by the local grocery stores. The large quantities of products sold compensates for the lower price. This is an example of:
A) economies of distribution.
B) economies of cost.
C) economies of demand.
D) economies of supply.
E) economies of scale.

Question

Quizplus · Accepted Answer

Economies of scale occur when a company reduces costs by increasing production, allowing it to spread fixed costs over more units, leading to lower prices. In this scenario, the grocery chain buys in bulk, reducing costs and passing savings to customers, exemplifying economies of scale.

A National Grocery Chain Sets Up a Store in a Small