Xi'an Manufacturing produces a unique terracotta warrior,and has the capacity to produce 50 000 warriors annually.Currently Xi'an produces 40 000 warriors and is thinking about increasing production to 45 000 warriors next year.What is the most likely behaviour of total manufacturing costs and unit manufacturing costs given this change?

Question

Quizplus · Accepted Answer

Increasing production from 40,000 to 45,000 warriors will likely increase the total manufacturing costs due to the costs associated with producing more units. However, because of economies of scale, the cost per unit (unit manufacturing costs) may decrease as the fixed costs are spread over a larger number of units, and variable costs per unit may decrease due to efficiencies gained in the production process.

Xi'an Manufacturing Produces a Unique Terracotta Warrior,and Has the Capacity