Economies of scale refer to
Blank
______ average total costs with added firm size.

Question

Economies of scale refer to 
Blank
______ average total costs with added firm size.

BlackTom AI · Accepted Answer

To begin, let’s restate the question and the given options to ensure clarity. The prompt asks: Economies of scale refer to ______ average total costs with added firm size. The answer choices are: rising, declining, constant, marginal.

Option 1: rising. If average total costs rose as the firm grew, this would indicate diseconomies of scale rather than economies of scale. Since economies of scale describe cost advantages with increased production, a rising ATC with larger size would be inconsistent with that concept. This makes this option incorrect.

Option 2: declining. Economies of scale are classically defined as a decrease in average total costs (ATC) as output or firm size increases. This reflects efficiencies achieved through specialization, spreading fixed costs, and better utilization of resources. Therefore, this option correctly captures the standard meaning of economies of scale.

Option 3: constant. If ATC remains the same as the firm expands, there is no change in per-unit costs with scale. While this would indicate constant returns to scale at the cost per unit level, it does not reflect the cost advantages described by economies of scale. Thus, this option is incorrect.

Option 4: marginal. Marginal typically refers to marginal costs (the cost of producing one more unit) or marginal product, not to average total costs relative to firm size. Using “marginal” here would mischaracterize the concept, so this option is incorrect.

In summary, the intuition behind economies of scale is that larger firms can lower their ATC as they grow, due to efficiencies and fixed-cost spreading. The other options describe outcomes or concepts (rising ATC, constant ATC, or marginal considerations) that do not align with the standard definition of economies of scale.

Economies of scale refer to Blank ______ average total costs with added firm size.

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