ACCA Applied Knowledge · Business and Technology · Microeconomic factors
A large brewery negotiates lower prices from hop suppliers because it orders in very large volumes. Which type of economy of scale is this?
It is a purchasing or bulk-buying economy of scale. The brewery's large order volumes give it bargaining power to obtain lower input prices per unit from suppliers, which reduces its average cost as it grows.
- ATechnical economy
- BPurchasing (bulk-buying) economyCorrect
- CManagerial economy
- DFinancial economy
Explanation
Discounts gained from buying inputs in large quantities are purchasing economies, a type of internal economy of scale. Technical economies relate to production methods and machinery. Financial economies relate to cheaper borrowing for large firms.
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