When larger businesses can afford to employ specialists whose salaries are high, these can be spread over the large number of goods produced so that the cost for the each of the workers is small

• A. Administrative Economies
• B. Managerial Economies of Scale
• C. Technical Economies of Scale
• D. Financial Economies of Scale

Answer: (B)

This item tests managerial economies of scale. When a business grows enough to hire specialists in management, those higher salaries become fixed costs that can be spread over a larger number of units produced. As output increases, the cost attributed to each unit for employing these managers drops, making the business more efficient overall. Skilled management improves planning, coordination, and control, which helps use resources more effectively and lowers average costs per unit. This isn’t about improvements in production technology (that would be technical economies) or about financing terms (financial economies), and it’s not primarily about other administrative savings—the scenario centers on spreading the cost of managerial expertise across more output.