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      Question

      In which of the following case , the production cost

      curves shifts downward?
      A Increase in labor productivity Correct Answer Incorrect Answer
      B Increasing returns to scale Correct Answer Incorrect Answer
      C Internal economies Correct Answer Incorrect Answer
      D External diseconomies Correct Answer Incorrect Answer

      Solution

      An economy of scale is a microeconomic term that refers to factors driving production costs down while increasing the volume of output. There are two types of economies of scale: internal and external economies of scale. Internal economies of scale are firm-specific—or caused internally—while external economies of scale occur based on larger changes outside the firm. Both result in declining marginal costs of production, yet the net effect is the same. Production cost curves shift downward due to internal economies of scale, as expansion of the firm leads to technical, managerial, financial, and commercial efficiencies that reduce cost per unit of output.

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