Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
By reducing average costs as production increases
B
By increasing variability in production processes
C
By limiting the market share of competitors
D
By maintaining constant production costs regardless of output
Understanding the Answer
Let's break down why this is correct
Answer
Achieving economies of scale means that as a firm produces more goods, the cost per unit of each item decreases. This happens because fixed costs, like rent and salaries, are spread over a larger number of products, making each one cheaper to produce. For example, if a factory can produce 1,000 toys for $10,000, the cost per toy is $10. However, if the factory increases production to 5,000 toys, the total cost might only rise to $15,000, making the cost per toy just $3. By lowering production costs, the firm can either sell at a lower price to capture more customers or keep prices the same and increase profits, both of which help in maximizing overall profit.
Detailed Explanation
When a company makes more products, the cost to make each one goes down. Other options are incorrect because Some might think that more variety in products helps profits; It's a common belief that limiting competitors helps profits.
Key Concepts
profit maximization
economies of scale
Topic
Resource Allocation for Profit Maximization
Difficulty
medium level question
Cognitive Level
understand
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