A cake manufacturer buys more sugar as its production output increases - HSC - SSCE Business Studies - Question 6 - 2018 - Paper 1

This scenario illustrates the concept of economies of scale, which refers to the cost advantages that a business obtains due to the scale of its operation, with cost per unit of output generally decreasing with increasing scale as fixed costs are spread out over more units of output. As the cake manufacturer increases its production, it can negotiate lower prices for sugar, demonstrating this economic principle.