Economics of size suggests which of the following about larger firms?

• A. They use management resources more efficiently and utilize assets more efficiently
• B. They always produce more output regardless of input
• C. They have higher per-unit costs
• D. They are less responsive to market changes

Answer: (A)

Economies of size (economies of scale) describe how bigger firms can lower average costs as they expand. As a firm grows, fixed costs such as buildings, machinery, and overhead can be spread over more units, reducing the cost per unit. Bigger firms can also deploy specialized management and production processes, and use their assets more efficiently—planning, maintenance, and utilization improve with scale. This combination means larger firms tend to use management resources and assets more efficiently, which is why that statement fits best.

Producing more output automatically isn’t guaranteed; output depends on demand and inputs. Higher per-unit costs reflect diseconomies of scale, which isn’t what the concept predicts. Being less responsive to market changes isn’t a defining outcome of size either, since large firms can be structured to be flexible or rigid depending on organization.