Paper 2 · Elasticity of Demand and Supply
Producing for a whole regional market instead of the home market alone allows a firm to
Aavoid paying any tax on the profits it earns at home
Bexpand its output and lower its average cost per unit
Ccharge a different price to each customer that it serves
Draise its average cost per unit as its total output grows
Explanation: A bigger market lets a firm produce on a larger scale, spreading its fixed costs over more units and buying inputs in bulk. Average cost falls, which is what is meant by economies of scale, and the firm becomes more competitive against producers from outside the bloc.
Derived from ZIMSEC Economics 4050/2 Paper 2, June 2023, Q1