Economies of Scale

Which of the following is an example of external economies of scale in tourism?

• A hotel providing complimentary breakfast to guests

• A city developing better transportation infrastructure that benefits all hotels

• A resort expanding its facilities to accommodate more guests

• A travel agency offering exclusive packages to a single hotel

Which of the following is an example of internal economies of scale?

• A company negotiating lower prices for bulk materials

• A city developing infrastructure that benefits all local businesses

• A firm using advanced technology to improve efficiency

• A government providing tax incentives to all manufacturers

What is meant by 'economies of scale'?

• An increase in the average cost of production as output increases

• A saving in average cost of production as output increases

• A decrease in the quality of products as output increases

• An increase in the number of employees as output increases

Answer explanation

'Economies of scale' refer to the cost advantages that a business obtains due to the scale of operation, with cost per unit of output generally decreasing with increasing scale as fixed costs are spread out over more units.

Which of the following best describes the relationship between production output and average cost in economies of scale?

• As production output increases, average cost increases

• As production output increases, average cost decreases

• As production output increases, average cost remains constant

• As production output increases, average cost fluctuates

Answer explanation

In economies of scale, as production output increases, the average cost per unit typically decreases due to factors like bulk purchasing and operational efficiencies. This makes the correct choice: as production output increases, average cost decreases.

Which of the following is an example of technical economies of scale?

• Borrowing money at a lower interest rate

• Purchasing raw materials in bulk

• Upgrading technology to reduce production costs

• Reducing marketing expenses

Answer explanation

Upgrading technology to reduce production costs is a clear example of technical economies of scale, as it directly enhances production efficiency and lowers costs per unit, unlike the other options which relate to financial or operational aspects.

Which type of economy of scale involves purchasing goods in bulk?

• Technical economies of scale

• Financial economies of scale

• Marketing economies of scale

• Purchasing economies of scale

Answer explanation

Purchasing economies of scale refer to the cost advantages gained by buying goods in bulk, which typically leads to lower prices per unit. This is the correct choice as it directly relates to bulk purchasing.

What happens to unit costs as production output increases, according to economies of scale?

• Unit costs increase

• Unit costs remain the same

• Unit costs decrease

• Unit costs fluctuate randomly

Answer explanation

According to economies of scale, as production output increases, the fixed costs are spread over more units, leading to a decrease in unit costs. Therefore, the correct answer is that unit costs decrease.

Which of the following is an example of managerial economies of scale?

• A) Hiring more managers to oversee production

• B) Implementing a new software to streamline operations

• C) Training existing staff to improve efficiency

• D) Centralizing decision-making processes

What is a characteristic of economies of scale in the context of social studies?

• A) Increased cultural diversity

• B) Reduced average costs with increased production

• C) Greater political influence

• D) Enhanced social welfare programs

Which of the following scenarios illustrates diseconomies of scale?

• A) A factory experiencing higher costs due to over-expansion

• B) A company reducing costs by buying in bulk

• C) A business improving efficiency with better technology

• D) A firm benefiting from government subsidies