A large supermarket chain can negotiate lower prices from its suppliers than a small independent shop. This is an example of
Question 1 Report
A large supermarket chain can negotiate lower prices from its suppliers than a small independent shop. This is an example of
Answer Details
The correct answer is a purchasing economy of scale.
A purchasing economy of scale arises when a large firm can buy inputs in bulk and use its bargaining power to negotiate lower prices from suppliers. A large supermarket chain places far bigger orders than a small independent shop, giving it leverage to secure discounts that reduce its average cost per unit.
A diseconomy of scale would raise costs, not lower them. An external economy of scale benefits all firms in an industry from industry-wide growth, not from one firm's own buying power. A technical economy of scale relates to the use of specialised machinery and production techniques, not purchasing discounts.
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