Which strategy could lead to economies of scale?

Investing in larger machinery for mass production can lead to economies of scale because it allows a farm or agribusiness to produce goods more efficiently and at a lower cost per unit as output increases. Larger machinery typically has a higher capacity, enabling the business to produce more products in the same amount of time compared to smaller equipment. This increased productivity, combined with the ability to spread fixed costs—such as the cost of machinery, utilities, and facility maintenance—over a larger quantity of produced goods, results in a decrease in average costs. Furthermore, larger-scale operations can often negotiate better deals with suppliers due to buying in bulk, further contributing to cost efficiencies.

In contrast, producing smaller batches of crops for niche markets may not leverage the same efficiencies as large-scale production, as it often requires higher per-unit costs and may not benefit from bulk purchasing. Reducing labor costs through automation can help with efficiency, but this approach does not inherently lead to economies of scale unless it is coupled with an increase in production capacity. Similarly, focusing exclusively on local markets may limit the scale at which a business can operate and do not contribute to cost efficiency in the same way broader market strategies can.