Answer to Question #59297 in Microeconomics for Vicky

Question

Because of economics of scale, it is sometimes more cost effective for a firm to operate a large plant at less than maximum efficiency than a small plant at maximum efficiency”. Do you agree with this statement? Explain

Answer 1

Economics of scale allows firms to increase its production with comparatively lower increase in total costs of production, so average total costs will decrease and total profits will increase. Large plant in some cases at less than maximum efficiency can have lover average total costs than a small plant at maximum efficiency, so profits per unit will be higher in a large plant according to economics of scale.
That's why I agree with the statement.