Which power is primarily about reducing average costs as output increases?

Which power is primarily about reducing average costs as output increases?

• A. Cornered resource
• B. Scale economies
• C. Switching costs
• D. Branding

Answer: (B)

Economies of scale describe how average cost per unit falls as production increases. When you produce more, fixed costs like machinery and facilities are spread over more units, and you can often gain efficiencies from bulk purchasing, better utilization of equipment, and learning effects. That reduction in cost per unit as output rises is exactly what the statement describes. The other terms don’t fit this idea. A cornered resource refers to having control over a scarce input to block competitors. Switching costs are the expenses or frictions customers face when moving to a different product. Branding influences demand and perceived value rather than the production cost per unit.

Economies of scale describe how average cost per unit falls as production increases. When you produce more, fixed costs like machinery and facilities are spread over more units, and you can often gain efficiencies from bulk purchasing, better utilization of equipment, and learning effects. That reduction in cost per unit as output rises is exactly what the statement describes.

The other terms don’t fit this idea. A cornered resource refers to having control over a scarce input to block competitors. Switching costs are the expenses or frictions customers face when moving to a different product. Branding influences demand and perceived value rather than the production cost per unit.