ACCA Applied Knowledge · Business and Technology · Microeconomic factors
A bakery doubles its output and finds that its average cost per loaf falls because it can now buy flour in bulk at a lower price. Which type of economy of scale does this describe?
This is a purchasing economy of scale. The bakery buys flour in larger volumes and receives a lower price per unit, which reduces average cost per loaf. It is not technical, which concerns machinery and processes, nor marketing, which concerns spreading advertising costs.
- APurchasing economyCorrect
- BTechnical economy
- CMarketing economy
Explanation
Buying inputs in larger quantities usually earns trade discounts, so the lower unit price of flour is a purchasing (bulk-buying) economy. Technical economies relate to production methods and machinery. Marketing economies relate to spreading promotion costs over higher sales.
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