when a firm is enjoying internal economies of scale, its?

1. Analyze the question The question asks what happens to a firm when it enjoys internal economies of scale.

2. Explain the concept Internal economies of scale are the cost advantages a firm gains from its own growth in size, for example through bulk buying, specialisation of labour, use of better machinery, or cheaper loans. The main result is that the cost of producing each unit falls as the firm expands output. In other words, long-run average cost (cost per unit) decreases as output increases.

3. Step-by-step solution

• A. Total cost is increasing: Total cost usually rises when output rises, whether or not there are economies of scale. This does not describe economies of scale, so it is not the best answer.
• B. Average fixed cost is rising continuously: Average fixed cost = Total fixed cost ÷ Output. As output grows, AFC falls, so this is wrong.
• C. Average cost of production decreases as output increases: This is exactly the definition of economies of scale. ✔
• D. Average revenue and marginal revenue are decreasing: These relate to the demand and revenue side (for example, a monopolist facing a downward-sloping demand curve). They have nothing to do with cost advantages.

4. Answer The correct option is C.

5. Tip Whenever you see "economies of scale", think "falling average cost". The opposite, diseconomies of scale, means average cost rises as output increases. Also remember that "internal" means the savings come from within the firm, while "external" means they come from the growth of the whole industry.