CAIE A-Level Economics 7.5.6 Economies of Scale

CAIE A-Level Economics 7.5.6 Economies of Scale
Cambridge International AS & A Level Economics 9708 syllabus for exams in 2026, 2027 and 20282026–2028

Practise identifying falling long-run average cost as output expands and separating internal purchasing, technical or financial economies from industry-wide external economies.

How this is tested

  • identify internal economies as lower LRAC caused by the firm's own expansion
  • classify purchasing, technical, managerial, financial or risk-bearing internal economies
  • identify external economies from industry growth, local infrastructure or shared skilled labour

Question 2

[Maximum number: 1]

A small European airline currently produces at point X on its long-run average cost curve (LRAC). It wants a bigger share of the European airline market and proposes to merge with another small European airline. The newly merged firm would produce at point Y on the long-run average cost curve, as shown.

Figure for Question 2 — CAIE A-Level Economics

Why might the newly merged firm be able to produce at point Y ?

A

The new airline can negotiate discounts when buying fuel.

B

The new airline has many layers of management.

C

The new airline is unable to hire enough pilots.

D

The workforce of the new airline lacks morale and is demotivated.