An appraiser is analyzing sales of office buildings, and finds a 20,000 square foot office building which sold for $60 per square foot. Considering the economies of scale principle, which of these would be the MOST likely sale price for a 35,000 square foot office building?

• A. $60 per square foot
• B. $45 per square foot
• C. $40 per square foot
• D. $30 per square foot

Answer: (C)

Economies of scale means price per square foot tends to fall as building size increases because fixed costs are spread over more space and buyers value lower operating costs in a larger property. If a 20,000 square foot building sold for $60 per square foot, a larger 35,000 square foot building would typically command a lower price per square foot, not the same or higher. The $40 per square foot option shows a meaningful, plausible drop in unit price consistent with scale effects, without being an unrealistically steep discount. A $60 per square foot price would ignore scale economies; $45 per square foot is a smaller decrease that might understate the impact of the larger size; $30 per square foot implies a very large discount unlikely given typical market dynamics for office space. So, $40 per square foot best reflects economies of scale.