Question

When a firm operates at an output level of $9,000 units, the per-unit cost is $5. When the production is between 10,000-12,000 units, the per-units cost is $4. At a production level of 13,000 units, the production cost is again $5 per unit. At 14,000 units and above, the production cost increases further. At what output level does the firm experience economies of scale?

Answer 1

Answer: 11000 units

Explanation:

Firm achieves the economies of scale when the particular quantity produced yields cost benefit to the firm. Here in the above case producing units between 10000 and 12000 units gives lesser cost of production per unit. To be cost competitive the firm has to produce at minimum efficient scale. Here the median is 2000 units so be on safer side average is 1000 units which gives 11000 units in total.

If the cost of production per unit goes up on producing additional units or lesser units then it would result in diseconomies of scale.