Economies of scale are achieved when?

• A. A business increases production and saves costs
• B. Selling products at a loss
• C. Hiring excessive staff
• D. Reducing output to lower costs

Answer: (A)

Economies of scale occur when producing more units lowers the average cost per unit. This happens because fixed costs are spread over a larger number of units, and benefits like bulk purchasing and more efficient use of machinery or processes kick in as output rises. So increasing production and saving costs embodies this idea: as the business produces more, the same overhead is shared across more products, reducing the cost per unit.

Selling products at a loss isn’t about efficiency from scale; it’s a pricing decision that can harm overall profitability. Hiring excessive staff tends to raise costs rather than reduce them. Reducing output lowers total costs but doesn’t create the cost advantages that come from large-scale production—often it can even reduce efficiency and miss out on economies of scale.