If setup costs are high, the manufacturer can produce the item often, and the average cost per item is stable and equal to the running costs.

Question

Quizplus · Accepted Answer

If setup costs are high, the manufacturer will try to produce the items less often to minimize setup costs. Therefore, the average cost per item will not be stable and equal to running costs. It may be higher due to the inclusion of setup costs.

If Setup Costs Are High, the Manufacturer Can Produce the Item