A Level Economics AQA Practice Exam

Managerial economies of scale lead to what outcome?

1. Increased average cost due to poor management

2. Reductions in average cost thanks to more productive specialist managers

3. Higher costs due to the need for more oversight

4. Stagnant costs with no change in output

The correct answer is: Reductions in average cost thanks to more productive specialist managers

Managerial economies of scale occur when a firm grows and can employ more specialized managers who focus on specific functions within the organization. As a result, these managers become more proficient in their roles, leading to increased efficiency and productivity. This specialization allows for better decision-making, improved operational procedures, and ultimately, a reduction in average costs per unit of output. When a firm expands, the involvement of specialized managers means that tasks can be performed more effectively compared to a situation where few managers handle a range of responsibilities. This increase in managerial efficiency translates directly into lower average costs for the firm. Over time, as the firm continues to grow and refine its processes, these declines in average costs can be significant, enhancing competitiveness in the market. The other options do not capture the essence of managerial economies of scale. Increased average costs or higher costs due to more oversight overlook the efficiencies gained through specialization. Similarly, stagnant costs do not adequately reflect the dynamic nature of a firm that benefits from specialization as it scales up operations.