Question

A factory in germany produces millions of auto parts a year, and has been able to reduce its costs per unit as it increased its production. This demonstrates the concept of.

Answer 1

A German business that makes millions of vehicle parts annually was able to lower its cost per unit as it boosted production. This serves as an example of the idea of economies of scale.

Cost advantages that businesses enjoy when production becomes efficient are known as economies of scale. By increasing production and reducing expenses, businesses can attain economies of scale. Costs are divided among more products, which causes this. Costs come in fixed and variable forms.

When it comes to economies of scale, the size of the business typically matters. Cost savings increase with business size. Both internal business and external economies of scale are possible. While external economies of scale are influenced by outside causes, internal ones are based on management choices.

Economies of scale result in cheaper per-unit costs for a variety of reasons. Production volumes are first increased through worker specialization and better technological integration. Additionally, decreased per-unit prices may result from larger advertising purchases, bulk orders from suppliers, or lower startup costs. Third, cost reduction is aided by dividing internal function costs among a greater number of manufactured and sold units.

Learn more about economies of scale here

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