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.

Question

Quizplus · Accepted Answer

Economies of scale occur when producing more units leads to a lower cost per unit. Since 200,000 units is below the minimum efficient scale of 250,000 units, ABC, Inc. is not fully utilizing its capacity, suggesting it is operating in the region of economies of scale.