Asked by Zachary George on May 09, 2024
Verified
In the long run a company that produces and sells popcorn incurs total costs of $1,150 when output is 60 canisters and $1,100 when output is 90 canisters. The popcorn company exhibits
A) diseconomies of scale because total cost is rising as output rises.
B) diseconomies of scale because average total cost is rising as output rises.
C) economies of scale because total cost is rising as output rises.
D) economies of scale because average total cost is falling as output rises.
Economies of Scale
Cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output generally decreasing with increasing scale.
Average Total Cost
The total cost of production divided by the quantity of output produced; it includes all variable and fixed costs.
- Fathom the fundamentals of economies of scale, diseconomies of scale, and constant returns to scale.
- Evaluate how changes in production influence a company's cost over an extended period.
Verified Answer
JL
Jahnyla LewisMay 12, 2024
Final Answer :
D
Explanation :
Economies of scale occur when the average total cost of production decreases as the quantity of output increases. In this case, as output increases from 60 to 90 canisters, the total cost increases from $1,150 to $1,100, indicating that the cost per unit (average total cost) is decreasing, which is a characteristic of economies of scale.
Learning Objectives
- Fathom the fundamentals of economies of scale, diseconomies of scale, and constant returns to scale.
- Evaluate how changes in production influence a company's cost over an extended period.