When firms grow larger, they sometimes acquire more market power, meaning that they have greater ability to negotiate lower prices with their suppliers. This ability to negotiate lower prices with their suppliers leads to

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BlackTom AI · Accepted Answer

Starting with the stem, the scenario describes firms gaining market power and negotiating lower supplier prices as they grow, which affects their costs rather than their output quality directly.
Option a: diseconomies of scale. This would imply that as the firm gets larger, average costs rise due to coordination problems, monitoring difficulties, or bureaucratic inefficiencies. That is the opposite of what the prompt describes, which is a cost-reducing bargaining advantage.
Option b: diminishing marginal returns. This concept applies to the production process in the short run where adding inputs leads to smaller and smaller increases in output, not to the bargaining power with suppliers or to costs per unit falling due to bulk purchasing. It’s a technical production detail rather than a supplier-power effect.
Option c: economies of scale. When a firm expands and gains greater purchasing power, it can negotiate lower input prices and spread fixed costs over more units, reducing average costs per unit. This aligns with the idea of larger firms obtaining cost advantages through scale, including supplier discounts and efficiency gains from bulk procurement.
Option d: increasing marginal returns. This term is less standard in economics and would suggest that each additional unit of input yields more additional output than the previous one, which is not the typical interpretation of a firm gaining supplier bargaining power or achieving lower costs through scale. It misstates the common analysis of scale effects and cost structures.
In summary, the description centers on cost advantages from size via supplier negotiations, which is characteristic of economies of scale rather than the other options that describe different or misaligned phenomena.

THC - MCD2020 - T3 - 2025 Lecture Quiz 6 - Cost of Production

When firms grow larger, they sometimes acquire more market power, meaning that they have greater ability to negotiate lower prices with their suppliers. This ability to negotiate lower prices with their suppliers leads to

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