Meridian Components Ltd makes precision components for medical equipment at a single factory and is considering increasing its monthly output. The factory can make at most 8,000 components a month, so any output above that would have to be produced at a second site. Table 1 shows the business's forecast monthly total cost at different output levels.
Table 1
| Monthly output of components | Monthly total cost |
|---|---|
| 2,000 | £96,000 |
| 5,000 | £210,000 |
| 8,000 | £304,000 |
| 11,000 | £473,000 |
Using Table 1, analyse how scale is likely to affect Meridian Components Ltd's average costs if it increases monthly output from 2,000 to 11,000 components.
138 exam-style questions on AQA GCSE Economics 1.4 Production, costs, revenue and profit, covering 1.4.1a Business objectives, 1.4.1b Types of costs and revenue, 1.4.1c Calculating profit, 1.4.1d Profit as an incentive to produce, 1.4.1e Moral and ethical considerations, 1.4.2a Production versus productivity, 1.4.2b Factors and benefits of productivity, 1.4.3a Economies of scale and business behaviour, 1.4.3b Types of economy of scale, and 1.4.3c Diseconomies of scale. Each one has a worked solution and a mark scheme showing where the marks go.