Manufacturers of flat -panel televisions expect continued rapid increases in the demand for their products. In response to this forecast, manufacturers are building increasingly larger plants. At the same time, they expect to sell flat -panel televisions at lower prices. Which of the following must be true if manufacturers plan to lower prices and yet expect to cover the average cost of production in their larger plants?
A) They expect that the demand for flat -panel televisions is relatively elastic and therefore lowering the price will lead to an increase in total revenue which will comfortably cover the average cost of production.
B) The cost of building a larger plant must be lower than the cost of building smaller plants.
C) Larger plants are more efficient than smaller plants because the bulk of the cost of production is a fixed cost.
D) They expect that economies of scale will make the cost of production in the larger plants lower than the cost of production in the smaller plants.
Correct Answer:
Verified
