If Quick Auto Service increases the size of its shop, enabling it to purchase cost-saving capital equipment so that the cost of servicing a car falls, this would be an example of
A) economies of scope.
B) economies of scale.
C) monitoring.
D) increasing transactions costs.

Question

Quizplus · Accepted Answer

Economies of scale occur when a firm can reduce its average cost of production by increasing its output. In this case, Quick Auto Service is able to reduce its cost of servicing a car by increasing the size of its shop and purchasing cost-saving capital equipment.

If Quick Auto Service Increases the Size of Its Shop