Atlas Manufacturing produces a unique valve, and has the capacity to produce 50,000 valves annually. Currently Atlas produces 40,000 valves and is thinking about increasing production to 45,000 valves next year. What is the most likely behavior of total manufacturing costs and unit manufacturing costs given this change?
A) Total manufacturing costs will increase and unit manufacturing costs will stay the same.
B) Total manufacturing costs will increase and unit manufacturing costs will decrease.
C) Total manufacturing costs will stay the same and unit manufacturing costs will stay the same.
D) Total manufacturing costs will increase and unit manufacturing costs will also increase.

Question

Quizplus · Accepted Answer

Increasing production from 40,000 to 45,000 valves will likely result in an increase in total manufacturing costs (due to increased materials, labor, and overhead expenses), but a decrease in unit manufacturing costs (due to economies of scale).

Atlas Manufacturing Produces a Unique Valve, and Has the Capacity