Which of the following best describes reductions in unit costs that occur when a firm receives a large order in a competitive market?

• A. Market equilibrium
• B. Marginal cost pricing
• C. Price discrimination
• D. Economies of scale

Answer: (D)

Verified step by step guidance

1. Understand the concept of 'unit costs' which refers to the cost incurred by a firm to produce one unit of a good or service.
2. Recognize that when a firm receives a large order, it can often produce more efficiently, spreading fixed costs over more units, which leads to a reduction in unit costs.
3. Identify that this reduction in unit costs due to increased production scale is known as 'Economies of scale'.
4. Compare the given options: 'Market equilibrium' relates to supply and demand balance, 'Marginal cost pricing' involves setting price equal to the cost of producing one more unit, and 'Price discrimination' is charging different prices to different consumers.
5. Conclude that the best description for reductions in unit costs from large orders is 'Economies of scale' because it directly explains cost advantages from increased production.