A Level Economics AQA Practice Exam

What advantages do larger firms have regarding marketing costs?

1. Access to more markets

2. Ability to engage more employees

3. Lower unit cost of advertising

4. Less competition from smaller firms

The correct answer is: Lower unit cost of advertising

Larger firms benefit from lower unit costs of advertising primarily due to economies of scale. As they scale up their operations, they can spread the costs of their advertising over a larger volume of sales. This means that while the total expenditure on marketing might be high, the cost per unit sold decreases. Additionally, larger firms often have the financial resources to invest in more effective marketing campaigns, which can enhance brand recognition and increase sales more significantly than smaller firms might be able to afford. Their size also allows them to negotiate better rates with advertising platforms or agencies, further reducing the cost per unit spent on marketing. This capability gives larger firms a significant competitive advantage, enabling them to allocate more resources towards advertising while maintaining lower overall costs per unit than their smaller counterparts. While access to more markets, the ability to engage more employees, and lower competition from smaller firms are related factors, the primary advantage concerning marketing costs specifically lies in the reduction of unit costs through economies of scale.