CMA Foundation · Fundamentals of Business Economics and Management · Theory of Production
A Coimbatore pump manufacturer buys steel in very large lots and gets a lower price per tonne than a small workshop pays. Which type of internal economy of scale does this illustrate?
Buying steel in very large lots at a lower price per tonne is a purchasing, or trading, economy of scale. The saving comes from bulk buying power on inputs, not from better machinery or cheaper finance, so technical and financial economies do not apply.
- ATechnical economy
- BMarketing economy
- CFinancial economy
- DPurchasing (trading) economyCorrect
Explanation
Lower input prices obtained by buying in bulk are a purchasing or trading economy, which is a type of marketing-side internal economy. Technical economies relate to machinery and production methods. Financial economies relate to cheaper credit, not raw material prices.
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