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Paper 1 · November 2024 · Stock Control

State the term for the fall in the average cost of producing each unit that an enterprise enjoys as its scale of output increases.

Model answer

economies of scale

Also accepted: economy of scale, internal economies of scale, economies of large scale production

Explanation

As output grows, fixed costs such as rent and managers' salaries are spread over more units, and the firm can buy inputs in bulk, run specialised machinery and borrow more cheaply, so each unit costs less to make.

Derived from ZIMSEC Business Enterprise Skills Paper 1, Nov 2024, Q1

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