Assuming the existence of economies of scale,if a firm finds that it can reduce its unit cost by decreasing its scale of production,it means that
A)it has too much production capacity relative to its demand.
B)it should try to produce less.
C)the law of diminishing returns has not taken effect.
D)it has too much fixed overhead relative to its variable cost.

Question

Quizplus · Accepted Answer

The existence of economies of scale means that as the scale of production increases, the unit cost decreases. Therefore, if a firm finds that it can reduce its unit cost by decreasing its scale of production, it suggests that the firm has too much production capacity relative to its demand, and reducing its scale of production can help it better match the demand for its products.

Assuming the Existence of Economies of Scale,if a Firm Finds