Question

Which of the following events would contribute to economies of scale?

1. Large supermarkets being able to drive down the cost of purchasing milk as it increases its scale of business.
2. The expansion of the workforce requiring extra layers of management for better performance monitoring.
3. A merger of two firms leading to savings on the costs of HR, IT, and legal departments.
4. The higher the number of users of Windows 10, the more likely it is that Microsoft will be able to achieve a higher sale of its operating system.

Can someone explain which answer is correct and why?

Answer 1

Option A, C, D.

A firm is said to achieve economies of scale if it is able to expand its production level because of which it is able to drive down the production costs.

Large supermarkets are successful in driving down the cost of purchasing milk as it is able to increase its business scale which indeed matches the definition of Economies of scale.

When two firms merge their production activities also expand with size because of which they are able to get higher Savings on costs of HR, IT and legal departments.

Higher number of users of windows 10 will decrease the cost of deploying the operating system, hence it allows Microsoft to achieve a higher sale of its operating system.