As production moves up, the average cost per unit decreases because ________.
A) variable costs decrease
B) of increasing diseconomies of scale
C) fixed costs are spread over more units
D) overhead costs decrease
E) revenue increases

Question

Quizplus · Accepted Answer

As production increases, fixed costs (such as rent and salaries of management) can be spread over a larger number of units, reducing the average cost per unit. Variable costs may or may not decrease with increased production, and overhead costs and revenue may not directly impact average cost per unit. Increasing diseconomies of scale may actually cause average cost per unit to increase after a certain point.

As Production Moves Up, the Average Cost Per Unit Decreases