Which of the following is most likely to benefit from economies of scale?

• A. A large manufacturing firm producing automobiles
• B. A neighborhood convenience store
• C. A small local bakery
• D. An individual freelancer working from home

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 typically happens because fixed costs are spread over more units, and operational efficiencies improve with size.
2. Step 2: Identify the characteristics of firms that benefit from economies of scale. Large firms with high fixed costs and the ability to produce in large quantities are more likely to benefit, as they can spread these fixed costs over many units.
3. Step 3: Analyze each option in terms of scale and fixed costs. A large manufacturing firm producing automobiles has significant fixed costs (factories, machinery) and produces many units, so it can spread costs and gain efficiencies.
4. Step 4: Compare with smaller businesses. A neighborhood convenience store, a small local bakery, and an individual freelancer typically have lower fixed costs and produce on a smaller scale, limiting their ability to benefit from economies of scale.
5. Step 5: Conclude that the large manufacturing firm producing automobiles is most likely to benefit from economies of scale due to its size, production volume, and cost structure.