The potential for spreading fixed costs over a greater volume of output means that unit cost continues to decline even after full capacity utilization has been reached.

Question

Quizplus · Accepted Answer

Once full capacity utilization is reached, spreading fixed costs over a greater volume of output is no longer possible without increasing capacity, so unit cost will not continue to decline and may actually increase due to the costs associated with overutilization or the need for expansion.

The Potential for Spreading Fixed Costs Over a Greater Volume