Railroad per unit costs decline as traffic increases. What is the reason for this cost behavior?
A) A high proportion of variable costs in the cost structure
B) A low proportion of fixed costs in the cost structure
C) A large proportion of fixed costs in the cost structure
D) Limited capital investment by the railroads

Question

Quizplus · Accepted Answer

Railroad operations have a large proportion of fixed costs, such as infrastructure and equipment, that do not vary significantly with the amount of traffic. As traffic increases, these fixed costs are spread over more units of traffic, leading to lower per unit costs.

Railroad Per Unit Costs Decline as Traffic Increases