Costs may decline at some ranges of production but increase at others.

Question

Quizplus · Accepted Answer

This is because of economies of scale, which refers to the cost advantages that a business can achieve by increasing its scale of production. As production increases, fixed costs are spread over more units, reducing the average cost per unit. However, if production increases too much, there may be diseconomies of scale, where the cost per unit increases due to factors such as coordination problems, communication breakdowns, or excessive bureaucracy.

Costs May Decline at Some Ranges of Production but Increase