Question

A manufacturer creates massive demand for its new plastic sandal and greatly increases its production level. Over time, its high-volume production brought on by demand stimulation results in lower costs. This is an example ofa. inelasticity of demand. b. economies of scale.c. brand loyalty. d. symbolic value

Answer 1

Answer:

The answer is: Economies of scale

Explanation:

Economies of scale are the diminished cost by companies when production becomes efficient.  Companies can achieve economies of scale by increasing production and lowering costs. This happens because fixed costs are spread over a larger number of goods. There are implications in variable costs as well (for example in obtaining discounts by large purchases from suppliers). In general, the larger the scale, the more cost savings.

The cost per unit depends on how much the company produces. Larger companies can produce more by spreading the cost of production over a larger amount of goods. Specialization of labor and more integrated technology boost production volumes. Lower per-unit costs can come from bulk orders from suppliers, larger advertising buys, or lower cost of capital. Spreading internal function (for ex: accounting, information technology, and marketing) costs across more units produced and sold helps to reduce costs.

The sustained increase in demand impacts on producers. Now they produced more units, being able to achieve economies of scale and the benefits previously described.