Internal economies of scale will ________ average cost when output is ________ by ________.
A) reduce; increased; a firm
B) increase; increased; a firm
C) reduce; increased; the industry
D) increase; increased; the industry
E) reduce; reduce; the industry

Question

Quizplus · Accepted Answer

Internal economies of scale refer to cost advantages a firm gains as it increases its output. As the firm becomes larger, it can take advantage of reduced costs per unit of output by spreading fixed costs over a larger output. This will lead to a decrease in average cost for the firm. Therefore, A is the correct choice as it states that internal economies of scale will reduce average cost when output is increased by a firm. The other choices are incorrect as they either state that economies of scale will increase average cost or apply to the industry as a whole rather than a firm.

Internal Economies of Scale Will ________ Average Cost When Output