Question

When a company grows its sales volume through international expansion, it can realize cost savings from economies of scale through all of the following EXCEPT :
a. spreading fixed costs over its global sales volume.
b. adopting high cost structures.
c. learning effects associated with higher volume.
d. increased bargaining power with its suppliers.
e. utilizing its production facilities more intensely.

Answer 1

Letter b is correct.

When a company increases its sales volume, the ideal to achieve economies of scale is to reduce the average cost of unit produced by decreasing fixed costs. The higher the production and sales volume, the lower the average cost of production and therefore the lower the fixed cost, as the utilization of existing facilities and resources such as machines, labor and facilities causes production capacity to increase and costs to increase. fixed do not change. Therefore adopting high cost structures is not advantageous to achieve economies of scale.