Give four principal reasons economies of scale can occur when output increases. Provide examples of each for a service firm

What will be an ideal response?

The four reasons are spreading fixed costs, reducing construction costs, cutting costs of purchased materials, and finding process advantages. Examples will vary, but spreading fixed costs might include managers' salaries, rent, and utilities applied to a larger output volume. In construction, the costs of architect's fees, permits, rental of construction equipment, and land might be the same regardless of the size of the store front under consideration. Higher volume of purchased materials might allow the purchasing firm to take advantage of price breaks or delivery scheduling. Finally, process advantages could include more efficient technology, like card readers at gas pumps, RFID for inventory tags, etc.