Discussion
When production increased in comparison to the quantity of cost elements is called :
Answer: B
This is called economies of the scale.
When a firm expands its scale and output rises proportionately more than the quantity of inputs, the cost elements of land, labour, capital and organisation, its average cost per unit falls. These savings, from specialisation, bulk buying, better machinery and spreading overheads, are economies of scale.
Constant returns to scale means output rises in exactly the same proportion as inputs, so unit cost does not change. Diseconomies of scale are the opposite case, where growth raises average cost through problems of management and coordination. The average cost curve is only the graph on which these effects are shown, not the name of the condition.
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