A Level Economics AQA Practice Exam

What do technical economies of scale result from?

1. Use of less advanced machinery

2. Employing more workers to increase output

3. Use of more advanced machinery which reduces average costs

4. Higher overhead costs associated with production

The correct answer is: Use of more advanced machinery which reduces average costs

Technical economies of scale arise when a firm increases production and, as a result, can employ more advanced machinery that enhances efficiency. This advancement in technology typically allows for the production of goods at lower average costs because the fixed costs associated with machinery and equipment are spread over a larger number of units produced. When a firm utilizes efficient technology, it can automate processes, reduce waste, and improve the speed of production, all of which contribute to lowering average costs per unit. This is particularly significant in capital-intensive industries where upfront investment in sophisticated machinery can offer substantial cost advantages as production scales up. Other options suggest scenarios that do not inherently lead to reduced average costs as a firm grows. Using less advanced machinery would likely increase costs per unit rather than decrease them. Employing more workers may also lead to diminishing returns if not matched with the appropriate level of technology, and higher overhead costs would generally increase average costs rather than reduce them.