What is meant by 'risk bearing economies of scale'?

'Risk bearing economies of scale' refers to the benefits a company experiences as it grows in size, particularly in terms of its ability to handle risks associated with production and market activities. When a larger company operates, it can spread the risks over a wider range of products, markets, and operations. This diversification helps in absorbing potential failures or downturns in specific areas, ultimately leading to a reduction in overall failure rates.

As businesses expand, they often increase their product lines or markets, thereby reducing their dependency on any single product or market. This safety in numbers means that if one part of the business faces challenges, the overall impact on the company can be mitigated by other areas performing well, leading to a lower likelihood of total failure.

The other options do not encapsulate this concept effectively. For instance, although lower production costs can be a result of economies of scale, it does not directly pertain to risk bearing; higher product variety and increased market saturation might be outcomes of growth and diversification, but they do not specifically address how risk is managed across a larger scale operation. In contrast, the reduction in overall failure rates captures the essence of risk bearing economies of scale well, as it highlights how businesses can better manage potential adverse outcomes as they grow.