Last month TMJG Co. started producing a new product called Thingamajigs from its new plant. Sales were quite good for the first couple of weeks. Unfortunately, a technological innovation was then announced by a competitor. This innovation will almost completely eliminate the demand for Thingamajigs. As a result, TMJG has decided to shut down and dismantle the plant next week. The average cost per unit will be highest if the plant was _________________________.
A) a small facility
B) in the right location
C) a large facility
D) just-in-time
E) a medium facility

Question

Quizplus · Accepted Answer

The question is asking for the scenario in which the average cost per unit will be highest. In general, large facilities have higher fixed costs than small facilities. Since the plant is being shut down relatively soon after starting production, the fixed costs will not have been spread out over many units, leading to a higher average cost per unit. Therefore, choice C, a large facility, is the best answer.

Last Month TMJG Co