Question

If the Cool Cappuccino Coffee House produces 100 coffee drinks a night with two workers and it doubles labor and capital, the firm would have to produce how many coffee drinks a night in order to experience economies of scale or increasing returns?

Answer 1

Answer:

Economies of scale are only possible by increased in production or if I use far much better words then I would say increased production due to increased efficiency. The increased investment in human resource and capital must reflect increased production than normal which shows efficiency. In this case the company must produce more than double production to achieve economies of scale. This economies of scale would decrease the cost per unit of coffee which in nutshell decreases the selling price and decrease in the price will increase the demand for the product. Increased demand would increase the profits of the Coffee House and ensure long term success for the company.