Question

Suppose that just by doubling the amount of output that it produces each year, a firm’s per-unit production costs fall by 30 percent. This result is an example of:

a. economies of scale.

b. improved resource allocation.

c. technological advance.

d. the demand factor.

Short answer

The correct option is (a) economies of scale.

Step-by-step solution

Step 1. Reason for option (a)

Economies of scale refer to the reduction in the per-unit cost of production with an increase in output. The statement says that the firm’s per-unit cost decreases by 30 percent after doubling the amount of output.It shows that the firm has reduced its per-unit cost by increasing the output, which aligns with the definition of economies of scale.

Hence, the given statement is an example of economies of scale.

Step 2. Reason for option (b)

When a firm’s workers move from low productivity employment to high productivity employment, it shows an example of improved resource allocation. The given statement does not align with the example of improved resource allocation.

Therefore, the given statement is not an example of resource allocation.

Step 3. Reason for option (c)

Technological advancement refers to the innovation of some new production technique through the addition of some cost-effective machinery, business model, or managerial idea. It also decreases the production cost but only if the company applies the new cost-effective technique.

But the statement says that per-unit cost has decreased with an increase in the output without any changes in production technique. Hence, it does not align with the definition of technological advancement.

Thus, the given statement is not an example of technological advancement.

Step 4. Reason for option (d)

According to the statement, a firm's production comes under the economy’s supply side. Hence, the statement does not align with the given option, which proves that the given option is incorrect.

Hence, the statement is not an example of a demand factor.