What are economies of scale?

• A. Savings in costs gained by an increased level of production
• B. The process of selling products abroad
• C. The ability to borrow money cheaply from banks
• D. The time taken to set up a new factory

Answer: (A)

Economies of scale are the cost advantages that come from producing more. When a company increases its output, the fixed costs—things that don’t change with production, like rent or machinery—get spread over more units, so the average cost per unit falls. In addition, larger scales can bring other savings: bulk purchasing of inputs at lower prices, more efficient use of equipment, and opportunities for specialized labor and workflows that boost productivity. All of this makes each unit cheaper to produce as production grows, up to a point.

So the best choice describes savings in costs gained by an increased level of production. The other options describe exporting, cheaper borrowing, and setup time, which are not about cost savings from producing more.