-For ABC, Inc., 250,000 units of output per year represent minimum efficient scale. If ABC, Inc. decides to produce 200,000 units this year, it will be operating in the region of
A)decreasing returns to scale.
B)economies of scale.
C)diseconomies of scale.
D)constant returns to scale.
E)none of the above

Question

-For ABC, Inc., 250,000 units of output per year represent minimum efficient scale. If ABC, Inc. decides to produce 200,000 units this year, it will be operating in the region of
A)decreasing returns to scale. 
B)economies of scale. 
C)diseconomies of scale. 
D)constant returns to scale. 
E)none of the above

Quizplus · Accepted Answer

Economies of scale occur when increasing production leads to lower average costs up to a certain point. Since ABC, Inc. is producing below its minimum efficient scale (250,000 units), it is in the region where increasing production to that level would still lead to lower average costs, hence economies of scale.