Which statement describes economies of scale?

• A. A market indicator
• B. The total revenue of a company
• C. Savings in costs gained by an increased level of production
• D. A strategy for product diversification

Answer: (C)

Economies of scale describe a situation where the average cost of producing each unit falls as output increases. This happens because fixed costs are spread over more units, and the production process becomes more efficient through bulk purchasing, better use of machinery and labor specialization, and learning effects as workers gain experience. That’s why the statement best describing economies of scale is savings in costs gained by an increased level of production.

Think of it like this: as a company makes more, the same overhead can cover more units, and inputs can be bought cheaper per unit, making each product cheaper to produce. In contrast, a market indicator measures market conditions, total revenue is about income from sales, and product diversification is about offering more products—none of these capture the cost savings that come from producing more.