Best operating level is the volume of output at which average unit cost is minimized.

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Quizplus · Accepted Answer

Best operating level is the volume of output at which average unit cost is minimized. This is because when production is increased beyond the best operating level, the average cost per unit starts to increase due to factors such as overproduction, idle labor, increased inventory carrying costs, and so on. On the other hand, when production is below the best operating level, the average cost per unit is also higher due to factors such as underutilization of capital and labor, higher costs of setup and tooling, and so on. Therefore, the best operating level is where the marginal cost of production equals the marginal revenue obtained from selling the product, which leads to minimized average unit cost.

Best Operating Level Is the Volume of Output at Which