Economies of scale means using:

• A. the same quantity of inputs to produce less output
• B. smaller quantities of inputs to achieve higher average costs
• C. higher prices to increase total revenue
• D. larger quantities of inputs to achieve lower average costs

Answer: (D)

Verified step by step guidance

1. Understand the concept of economies of scale: it refers to the cost advantages that a firm experiences as it increases its level of production.
2. Recognize that economies of scale occur when increasing the quantity of inputs leads to a more than proportional increase in output, which reduces the average cost per unit.
3. Analyze each option by comparing the relationship between inputs, outputs, and average costs:
4. - Using the same quantity of inputs to produce less output would increase average costs, which is not economies of scale.
5. - Using smaller quantities of inputs to achieve higher average costs contradicts the idea of economies of scale, which lowers average costs.
6. - Higher prices to increase total revenue relate to pricing strategy, not economies of scale.
7. - Larger quantities of inputs to achieve lower average costs correctly describes economies of scale, where increasing production lowers the cost per unit.