Question

Steve owns a bike store. He currently sells 1,200 bikes per year. If he doubles the size of his store so he can sell 2,400 bikes per year and his long-run average total cost per bike decreases, we know that Steve is experiencing:

Answer 1

Answer: Economies of scale

Explanation:

Economies of scale is the saving in costs that is gained by an increase in the level of production. Economies of scale exist when there is an expansion in a firm's production thereby leading to a decrease in the firm's long-run average costs.

A reason for economies of scale is due to specialization of labor and machinery. An increase in sales of bikes from 1200 to 2400 with a lower long run average cost shows that there's economies of scale.