For which of the following reason(s) may firms experience economies of scale?
a. firm's production may increase with a smaller proportional increase in at least one input.
b. large firms may be able to purchase inputs at lower costs than smaller competitors; they can also borrow money at a lower interest rate.
c. both managers and workers may become more specialized and hence more productive as output expands.
d. all of the above.

The correct answer is option D.

Explanation:

Economies of scale refer to the situation when the average cost of production goes on decreasing as the volume of output produced increases.

This implies that a larger firm has lower average production costs as compared to a smaller firm.  

The economies of scale can be both external as well as internal. There are a number of factors that lead to economies of scale.  

One of the factors is the specialization of labor. As workers and managers become more specialized the efficiency increases and average production cost declines.  

Also, large firms are able to get credit at a lower interest rate. They are also able to get inputs at a lower cost and thus enjoy cost advantages.  

When the firms are able to increase their output by a great proportion only by increasing their input by a small proportion, they are able to get cost advantages.

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