A cell phone manufacturing firm produced 1,000 cell phones a day but believed that it could reasonably step up production to 2,000 cell phones a day. Consequently, it built a larger plant and installed efficient machineries and work arrangements to realize the projected output. Which of the following can most likely be inferred from this information?
A) The unit cost of producing 2,000 cell phones per day would be twice that of the unit cost of producing 1,000 units per day.
B) A production plant with the capacity of producing 5,000 cell phones a day would be most efficient.
C) The unit cost of producing 2,000 cell phones per day would be lower than the unit cost of producing 1,000 units per day.
D) A 2,000-capacity production plant would be less efficient because of increasing diseconomies of scale.
E) The fixed costs of the firm are more likely to increase with the increase in output.

Question

Quizplus · Accepted Answer

The firm built a larger plant and installed efficient machineries and work arrangements to increase production, which indicates that they aimed to achieve economies of scale. Generally, with large-scale production, unit cost decreases due to cost-saving measures that come with a larger scale of production. So, it can be inferred that the unit cost of producing 2,000 cell phones per day would be lower than the unit cost of producing 1,000 units per day.

A Cell Phone Manufacturing Firm Produced 1,000 Cell Phones a Day