67. Which of the following points to a reduction in the average cost of a unit produced as production output increases?
Answer: C
Economies of scale
Economies of scale refer to the reduction in the average cost of producing a unit as the level of production increases. This concept indicates that as companies produce more, they can spread fixed costs over a larger number of goods, leading to lower costs per unit.
A) Best operating level
The best operating level is the point at which a firm operates most efficiently, but it does not inherently imply a reduction in average costs with increased production. This term focuses on optimal production capacity rather than the cost benefits associated with scaling production.
B) Diseconomies of scale
Diseconomies of scale occur when a company's production costs per unit increase as it produces more. This option is the opposite of the correct answer, as it highlights inefficiencies rather than cost reductions associated with increased output.
C) Economies of scale
Economies of scale accurately describe the phenomenon where the average cost of production decreases as output increases. This concept is key in understanding how businesses can enhance profitability through increased production volumes.
D) Focused factories
Focused factories refer to production facilities that concentrate on a limited range of products to improve efficiency. While they can enhance productivity, they do not directly address the reduction in average costs associated with increasing production levels.
Conclusion
The concept of economies of scale is pivotal in understanding how firms can lower production costs as they expand output. Options A, B, and D do not reflect the relationship between increased production and reduced costs, while Option C precisely captures this essential economic principle. Thus, economies of scale is the definitive answer to the question posed.