Economies of scale may arise from all but one of the following sources. Which one does NOT typically lead to economies of scale?

• A. Increasing advertising costs per unit
• B. Bulk purchasing of inputs
• C. Use of more efficient technology
• D. Specialization of labor

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the concept of economies of scale. Economies of scale occur when increasing the scale of production leads to a lower average cost per unit. This means that as a firm produces more, the cost per unit decreases due to various efficiencies.
2. Step 2: Identify typical sources of economies of scale. Common sources include bulk purchasing of inputs (which reduces input costs per unit), use of more efficient technology (which improves productivity), and specialization of labor (which increases worker efficiency).
3. Step 3: Analyze the option 'Increasing advertising costs per unit.' Advertising costs that increase per unit do not reduce average costs; instead, they increase costs as output grows, which is contrary to economies of scale.
4. Step 4: Compare each option to the definition of economies of scale. Bulk purchasing, efficient technology, and labor specialization all help reduce average costs, while increasing advertising costs per unit raise average costs.
5. Step 5: Conclude that the source which does NOT typically lead to economies of scale is the one that increases costs per unit, which is 'Increasing advertising costs per unit.'