1.5 Growth and Evolution (Scale)

Question 1

Economies of Scale

Answer 1

Refers to a lower cost of production by increasing the size of operations

Question 2

Diseconomies of Scale

Answer 2

Refers to a company expanding so much that its cost per unit increases

Question 3

Cost of Production

Answer 3

Reflects all costs involved in the manufacturing or production of a product

Question 4

Optimal Output Level

Answer 4

When the average cost of production is at its lowest potential

Question 5

Two Components of Costs

Answer 5

Average Variable Costs: Costs that vary with output (raw materials, packaging, utility costs etc)
Average Fixed Costs: Costs that do not vary with output (wages, rent etc)