Economies of size indicate that bigger businesses use assets more efficiently than smaller businesses.

• A. True
• B. False
• C. Only true for service firms
• D. Only true for agriculture

Answer: (A)

Economies of size describe how larger production allows a firm to use its assets more efficiently. When a business operates at a bigger scale, fixed costs are spread over more units, and machinery, facilities, and other assets can run more continuously, reducing downtime and per-unit costs. Buying inputs in larger quantities often lowers per-unit prices, and specialized labor or management practices can improve productivity. All of these factors mean that, on average, bigger businesses tend to use their assets more efficiently than smaller ones, so the statement is true. While there can be challenges at very large sizes, the general idea is that scale brings greater asset efficiency.