Once a company reaches the point known as the minimum efficient scale, the "theory of the firm" suggests that the company should:

Once a company reaches the point known as the minimum efficient scale, the "theory of the firm" suggests that the company should:
A . Halt its output expansion
B . Accelerate its output expansion
C . Increase its unit price
D . Decrease its unit price

View Answer

Answer: D

Explanation:

Minimum Efficient Scale:

This is the point where a company achieves the lowest average cost per unit due to economies of scale. Once this level is reached, the firm can afford to lower prices to remain competitive and expand market share.

Elimination of Other Options:

A: Halting expansion would waste the cost advantages achieved.

B: Accelerating output expansion could lead to diseconomies of scale.

C: Increasing unit prices is counterintuitive at this stage.

Reference: ICWIM Module 3: Coverage of cost structures and the theory of the firm.