A firm enjoying economies of scale is said to be?

A. reducing average cost as production increases
B. benefiting from the activities of other firms
C. maximizing profits as production increases
D. having an upward-sloping average cost curve

Correct Answer:

Option A – reducing average cost as production increases

Explanation

As long as the Long-run average cost curve is declining, then internal economies of scale are being exploited. If LRAC is falling when output is increasing, then the firm is experiencing economies of scale.