An organization whose capacity is on that portion of the average unit cost curve that falls as output rises:
A)has a facility that is below optimum operating level and should build a larger facility.
B)has a facility that is above optimum operating level and should reduce facility size.
C)is suffering from diseconomies of scale.
D)has utilization higher than efficiency.
E)has expected output higher than rated capacity.

Question

Quizplus · Accepted Answer

An organization whose capacity is on that portion of the average unit cost curve that falls as output rises is experiencing economies of scale. This means that as the organization produces more, the per-unit cost decreases. However, if the facility is below optimum operating level, it means that the organization is not producing at its full capacity and can benefit from building a larger facility to take advantage of the economies of scale.

An Organization Whose Capacity Is on That Portion of the Average