\begin{tabular}{|l|}\hline Question 20 \\ \hline Economies of scale occur where \\ \hline long-run average cost falls as new firms enter the industry \\ \hline short-run average cost falls as new firms enter the industry \\ \hline long-run average cost falls as a firm expands production \\ \hline short-run average cost falls as a firm expands production \\ \hline long-run average cost rises as a firm expands production \\ \hline\end{tabular}

When firms expand their production in the long run and are able to decrease their average costs, they benefit from efficiencies such as specialized labor and advanced technology. This is the magic of economies of scale, where larger production volumes allow for fixed costs to be spread over more units, consequently lowering each unit's cost. Imagine a pizza shop: the more pizzas it churns out, the cheaper each individual pizza becomes to make! In the real-world, economies of scale can give large firms a competitive edge, enabling them to lower prices and increase market share. Think about major companies like Amazon or Walmart – their vast operations allow them to negotiate better rates with suppliers, making them able to sell products at lower prices than local stores. However, the challenge arises when a firm grows too big and faces diseconomies of scale, where costs unexpectedly rise due to inefficiencies of managing a larger organization!