A FIRM ENJOYING ECONOMIES OF SCALE IS SAID TO BE

• A. reducing average cost as production increases ✓
• B. benefiting from the activities of other firms
• C. maximizing profits as production increases
• D. having an upward-sloping average cost curve

A firm enjoying economies of scale is said to be reducing average cost as production increases. This means that as the firm produces more goods or services, its average cost per unit decreases. Economies of scale occur when a firm can spread its fixed costs over a larger number of units, leading to lower average costs. This allows the firm to become more efficient and competitive in the market.

When a firm benefits from economies of scale, it can produce goods at a lower cost than its competitors, giving it a competitive advantage. By reducing average costs as production increases, the firm can potentially increase its profits by either maintaining its prices while increasing margins or by lowering prices to attract more customers.

In contrast, having an upward-sloping average cost curve would indicate diseconomies of scale, where the firm experiences an increase in average costs as production levels rise. This could be due to inefficiencies in operations, increased coordination challenges, or other factors that lead to higher costs per unit.

In other words, when a firm is said to be enjoying economies of scale, it means that as the level of production increases, the average cost of production per unit decreases. This phenomenon occurs due to various factors such as spreading fixed costs over a larger number of units, increased specialization and division of labor, efficient use of resources, and potential bargaining power with suppliers.

Firms experiencing economies of scale benefit from lower average costs as they produce more goods or services. This allows them to achieve cost efficiencies and potentially increase their profitability.

In contrast, if a firm were not experiencing economies of scale, its average costs would remain constant or even increase as production levels rise. This would indicate diseconomies of scale, where the firm faces challenges in managing increased production that lead to higher average costs.

Therefore, firms that can reduce their average costs as they produce more are likely benefiting from economies of scale.