Economies of scale refer to which concept?

• A. Increased costs with higher output
• B. Saving in costs achieved by larger production
• C. Decreased quality with scale
• D. Longer lead times due to volume

Answer: (B)

Economies of scale refer to the cost advantage that comes with producing more, so the average cost per unit falls as output rises. This happens mainly because fixed costs—like plant, machinery, and management—are spread over a larger number of units. Other benefits includeBulk purchasing discounts, more efficient use of machinery and space, and greater specialization and learning as production scales up. As a result, larger production reduces per‑unit costs, at least up to a point. It’s not about higher costs, poorer quality, or longer lead times; those would be opposite effects (diseconomies of scale or inefficiencies) that can occur if growth is unmanaged.