Why do I lose marks for saying a bigger firm has lower costs?

Because the sentence is about size and the marks are about unit cost, and because it skips the mechanism. Economies of scale are not a property of being large; they are specific reasons why average cost per unit falls as output rises, and the examiner wants the reason named.

Say "average cost", not "costs"

Total costs rise with output — always. Producing more of anything costs more in total.

What falls is the cost per unit. A factory costing 500,000 a year to run contributes 50 per unit at 10,000 units and 5 per unit at 100,000. The fixed cost did not change; it got spread.

Writing "costs fall as the firm grows" is read as a claim about total cost, which is wrong. "Average cost per unit falls" is the statement being tested.

Name which economy applies

A scenario will point at one or two. Identifying them specifically is where the marks are:

Purchasing. Buying in bulk earns discounts. The most obvious and the one students always reach for — fine, but say what the firm is buying.

Technical. Larger-scale equipment is more efficient per unit of output, and specialised machinery only becomes worth its cost at volume. A small bakery cannot justify an industrial oven.

Managerial. A large firm can employ specialists — a dedicated finance director, a marketing team — whose cost is spread across far more output. A small firm's owner does all those jobs, less well.

Financial. Larger firms borrow more cheaply, because lenders see them as lower risk.

Marketing. The cost of a campaign is spread over more units sold.

One named economy with an explanation tied to the scenario beats five listed.

Diseconomies are where the better marks sit

Questions about growth almost always want the other direction too, and the mechanisms matter as much.

Communication. More layers between the top and the shop floor means slower, more distorted information. Decisions get made late or on bad data.

Coordination. Running many sites or divisions takes management effort that grows faster than output does.

Motivation. Workers in a large organisation can feel anonymous and less connected to the outcome, and productivity falls.

These are why firms do not grow indefinitely, and a question asking whether a firm should expand usually wants at least one of them.

The evaluation that scores

Three points reliably earn the discussion marks:

Economies are potential, not automatic. A firm has to actually be managed well enough to realise them. Growth can raise average cost if it is handled badly, and plenty of real expansions have.

They depend on selling the extra output. Producing 100,000 units cheaply is worthless if demand is 40,000. The unsold stock is a cost, not a saving.

There is usually a minimum efficient scale beyond which further growth adds little. Expansion past that point buys diseconomies without buying savings.

A question asking "will expansion reduce unit costs?" wants a judgement, not a list. The answer is usually "yes up to a point, provided demand supports it and coordination holds", with the limiting factor drawn from the scenario.