The larger the output,the more output over which fixed cost is distributed.Called the _____ effect,this leads to a _____ average _____ cost as output rises.
A)spreading;lower;fixed
B)spreading;higher;fixed
C)diminishing returns;lower;variable
D)diminishing returns;higher;variable

Question

Quizplus · Accepted Answer

The concept described is the spreading effect, which occurs when fixed costs are spread over more output, resulting in a lower average fixed cost per unit. This leads to a lower average total cost as output rises, as both fixed and variable costs are spread out over more units of output. Choice B is incorrect as spreading effect leads to lower costs, not higher costs. Choice C and D refer to the concept of diminishing returns, which is unrelated to the concept of the spreading effect.

The Larger the Output,the More Output Over Which Fixed Cost