Merck, the pharmaceutical company, has taken more than a thousand drugs through the federal approval process and so can do it more cost efficiently than many of its competitors who are relatively new to the industry. Which of the following refers to cost savings that come to Merck in the drug approval process? A. location economiesB. economies of scaleC. ancillary effectsD. learning effectsE. exponential effects

B. economies of scale

Explanation:

Economies of scale refers to the microeconomic property that helps firms reduce costs when they produce output at a large scale, since the total production costs are spread over a larger quantity of units, meaning that the cost per unit decreases.

In this case, Merck is using economies of scale by sending thousands of drugs to the FDA, meaning that the test cost per drug will be lower than if it had sent only a few drugs to the tests.

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