ACCA Applied Knowledge · Business and Technology · Microeconomic factors
A car manufacturer doubles its output and finds that its average cost per car falls because it can now negotiate lower prices by ordering components in much larger quantities. Which type of economy of scale does this describe?
This is a purchasing or buying economy of scale. By ordering components in larger quantities the firm gains bulk discounts and bargaining power with suppliers, which lowers the average cost per unit as output grows.
- APurchasing (buying) economyCorrect
- BTechnical economy
- CManagerial economy
- DFinancial economy
Explanation
Bulk discounts from ordering larger quantities of inputs are purchasing economies. Technical economies relate to production methods and machinery. Managerial economies relate to specialist managers. Financial economies relate to cheaper borrowing for large firms.
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