When a firm operates at an output level of 9,000 units, the per-unit cost is $5. When the production is between 10,000-12,000 units, the per-unit cost is $4. At a production level of 13,000 units, the production cost is again $5 per unit. At 14,000 units and above, the production cost increases further. At what output level does the firm experience economies of scale

When the production is between 10,000 to 12,000 units.

Explanation:

Economies of scale are the cost savings that companies reap due to its production levels. It occurs when more units are produced at a lower cost. Costs can be differentiated in-to two categories based on the level of production: Variable cost and Fixed cost. Variable cost varies with the level of production, whereas, fixed cost remains constant irrespective of production level. The key factor of Economies of scale is Fixed cost. Let's say that a company has a fixed cost of $100 and it produces 100 units. Then its unit cost will be $1. But if the company produce more units, let's say 200 units, then the unit cost will cut down by $0.5. One point that should be remember here is that fixed cost remains fixed only within a relevant range of activity. If we compare this point with the case given, the relevant range for fixed cost is from 9,000 units to 12,000 units, after which there will be an increase in fixed cost because of which unit product cost increases.

B. 11,000 units

Explanation:

When a firm operates at an output level of 9,000 units, the per-unit cost is $5. When the production is between 10,000-12,000 units, the per-unit cost is $4. At a production level of 13,000 units, the production cost is again $5 per unit. At 14,000 units and above, the production cost increases further. 11,000 units is the output level the firm experience economies of scale

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