Economies Of Scale MCQ Quiz

Economies of scale refer to the lower average cost of production. This concept suggests that as the scale of production increases, the average cost per unit decreases. This is because fixed costs, such as machinery and infrastructure, can be spread over a larger number of units, resulting in cost savings. By achieving economies of scale, businesses can increase their profitability by reducing their production costs and potentially gaining a competitive advantage in the market.

Diseconomies of scale refer to the situation when a company's size becomes too large, leading to inefficiencies and increased costs. As the company grows, coordination and communication become more challenging, leading to a decrease in productivity and an increase in costs. This can result in a decrease in production efficiency, which supports the statement that the answer is true.

Businesses can benefit from financial economies by obtaining a high sum loan with a low interest rate. This allows businesses to access a large amount of capital at a lower cost, enabling them to invest in growth opportunities, expand operations, or improve their financial position. By securing favorable loan terms, businesses can reduce their overall borrowing costs and increase their profitability. Additionally, a high sum loan provides businesses with the necessary funds to meet their financial needs and support their strategic objectives.

Economies of scale occur when a company’s production increases, leading to lower fixed costs.

In a monopsony economy, there is only one buyer in the market. This means that large-sized businesses have a significant advantage as they have the purchasing power to buy in bulk, allowing them to negotiate for discounts from suppliers. Small and medium-sized businesses may not have the same bargaining power and may not be able to secure the same discounts. Therefore, the correct answer is that large-sized businesses can get discounts from bulk purchase.

Managerial economies involve the specialization of departments within an organization. This means that different departments focus on specific tasks and functions, allowing them to become more efficient and productive in their respective areas. By specializing, departments can develop expertise and streamline their operations, leading to cost savings and improved overall performance. This type of economy of scale is particularly beneficial in large organizations where different departments handle various aspects of the business.

The correct answer is "Returns of scale". Economies of scale refers to the cost advantages that a company can achieve when it produces goods or services on a larger scale. As the scale of production increases, the average cost per unit decreases, leading to higher returns for the company. This concept is commonly known as returns of scale.

When a firm doubles its use of inputs and finds that output increases by only 50%, it indicates that the firm is experiencing diseconomies of scale. Diseconomies of scale occur when the firm's production costs increase at a faster rate than the increase in output. This can be due to factors such as inefficiencies, coordination problems, or a lack of economies in purchasing inputs in larger quantities. As a result, the firm's average cost per unit of output increases, leading to a decrease in profitability.

Conglomerate businesses benefit from risk-bearing economies because they have diversified portfolios of different businesses in various industries. This diversification allows them to spread the risks associated with individual businesses across their entire portfolio. If one business is facing financial difficulties or is underperforming, the conglomerate can rely on the profits generated by other businesses to offset the losses. This risk-sharing strategy helps conglomerates to mitigate the impact of economic downturns or industry-specific challenges, ultimately leading to more stable and sustainable growth.

External economies of scale refer to cost savings that are available to the entire industry as a result of its location. This means that when businesses in the same industry are located close to each other, they can benefit from shared infrastructure, specialized suppliers, a skilled labor pool, and knowledge spillovers. These factors can lead to lower costs of production and increased efficiency for all businesses in the industry. Therefore, the correct answer is "Industry, Location."