What is an effect of having large businesses in a market?

Large businesses often benefit from operational economies of scale, which is the correct answer. This means that as a company increases its production, the average cost per unit usually decreases. This occurs because fixed costs, such as overhead, are spread over a larger number of goods, and they can also negotiate bulk purchasing discounts for materials. Additionally, large businesses can invest in more efficient technology and processes, further enhancing their ability to reduce costs.

While increased competition can occur in a market with large businesses, it’s typically the case that they establish significant market power, which can actually limit competition rather than increase it. Higher production costs can be associated with smaller businesses that do not benefit from economies of scale. Limited product variety might happen in some markets dominated by large businesses, but they often provide a wide range of products to meet diverse consumer needs. Therefore, operational economies of scale effectively encapsulate the advantage large businesses have in managing their costs efficiently.