What happens to the average total cost curve for a company with economies of scale?

Question

A. When production decreases, the cost of production falls.
B. Marginal revenue is greater than market price.
C. Marginal revenue is less than market price.
D. When production increases, the cost of production falls.

Answer 1

The correct answer is:

D. When production increases, the cost of production falls.

In the context of economies of scale, as a company increases its production, the average total cost per unit tends to decrease. This happens due to factors such as the spreading of fixed costs over a larger output and operational efficiencies gained with increased production.