ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Effects of Economies of Scale on Production Costs It reduces the per-unit fixed cost. As a result of increased production, the fixed cost gets spread over more output than before. It reduces per-unit variable costs. This occurs as the expanded scale of production increases the efficiency of the production process.

Detailed explanation-2: -Economies of scale are cost advantages reaped by companies when production becomes efficient. Companies can achieve economies of scale by increasing production and lowering costs. This happens because costs are spread over a larger number of goods. Costs can be both fixed and variable.

Detailed explanation-3: -This is because the cost of production (including fixed and variable costs) is spread over more units of production. Economies of scale provide larger companies with a competitive advantage over smaller ones, because the larger the business, the lower its per-unit costs.

Detailed explanation-4: -The average cost per unit decreases as more output units are produced due to the total costs being able to be spread across a higher quantity of goods. Thus, as a company’s revenue (and production volume) increases, the per-unit costs decrease as expenses are spread across a higher number of units.