Why can large cloud providers offer compute at lower per-unit cost than most individual organizations can achieve on-premises?
A.They use older, cheaper hardware
Providers run modern hardware — the savings come from scale, not cheap equipment.
B.Economies of scale — massive purchasing power and shared infrastructure lower per-customer costs
Volume purchasing + shared infrastructure = lower per-unit costs. Correct.
C.They don't have to pay for electricity or facilities
Providers pay huge power/facility costs — spread across an enormous customer base.
D.They charge hidden fees that offset the apparent savings
Pricing is consumption-based and transparent; the model works because of real scale efficiencies.
Why this answer
Economies of scale: providers buy hardware and energy at massive volume discounts and amortize datacenter costs across millions of customers, passing savings on as lower per-unit prices.
Correct answer: B · Last reviewed 2026-02-13
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