Question

A firm is most likely to experience economies of scale if its start-up costs are high and its marginal cost is ________?

1) Low
2) High
3) Constant
4) Variable

Answer 1

A firm is most likely to experience economies of scale if its start-up costs are high and its marginal cost is low. Hence, the correct answer is option 1.

Step-by-step explanation:

A firm is most likely to experience economies of scale if its start-up costs are high and its marginal cost is low. Economies of scale occur when the average cost of production decreases as the quantity of output increases. This can happen because high start-up costs can be spread across a larger quantity of output, leading to lower average costs. In addition, low marginal costs mean that the cost of producing each additional unit of output is relatively low. This combination of factors creates cost advantages for the firm and allows it to achieve economies of scale.