Average cost curves decline because
A)fixed cost is spread out over larger amounts of production.
B)it becomes cheaper to produce an infinite amount of goods.
C)additional units of production are inferior.
D)variable costs increase with each additional amount of production.

Question

Quizplus · Accepted Answer

As more units of production are produced, fixed costs (such as rent, salaries, and equipment) are spread out over a larger number of units, making the average cost per unit decline. This is known as the economies of scale. Option B is incorrect because there is usually a limit to how much can be produced before costs increase due to factors such as resource limitations, labor constraints, or technological constraints. Option C is incorrect because an increase in production leads to a decrease in marginal cost but not a lower average cost. Option D is incorrect because variable costs may increase, but this does not necessarily imply an increase in average cost.

Average Cost Curves Decline Because