Economies of Scale Exist as a Firm Increases Its Size

question 39

Multiple Choice

Economies of scale exist as a firm increases its size in the long run because of all of the following except:

• A) The firm can afford more sophisticated technology in production.
• B) Labour and management can specialise even further in their tasks.
• C) As a larger input buyer, the firm can purchase inputs at a lower per unit cost.
• D) As a firm expands its production, its profit margin per unit of output increases.

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Definitions:

Lease Liability

An obligation representing the present value of lease payments due over the lease term by the lessee.

Executory Costs

Ongoing operational expenses related to a leased asset, typically including insurance, maintenance, and taxes, that are usually paid for by the lessee.

Salvage Value

Salvage value is the estimated resale value of an asset at the end of its useful life.

Incremental Borrowing Rate

This is the interest rate a company would have to pay if it borrows funds to finance a lease transaction, used in lease accounting to measure lease liabilities under accounting standards.