Jasper United is a young firm that expects to see their sales quantity increase exponentially over the next ten years due to their product innovation. Given this, management has decided that the firm should invest heavily in equipment and facilities capable of producing large quantities of output at a low marginal cost. This decision will result in relatively _____ costs per unit and _____ costs per unit.

Question

Quizplus · Accepted Answer

Investing heavily in equipment and facilities leads to high fixed costs because these are costs that do not change with the level of output. However, this investment allows the firm to produce at a low marginal (or variable) cost per unit because the cost of producing one more unit is reduced when using efficient, high-capacity equipment.

Jasper United Is a Young Firm That Expects to See