If the output rate is increased but the average unit costs decrease we are experiencing:
d. Highel Lapuum e. Assembly lines 11. Maximum capacity refers to “The upper limit of…” a. Inventories b. Demand c. Supplies d. Output rate e. Finances 12. “total cost equals total revenue” happens at the: a. Bottleneck b. Break-even point c. Maximum capacity d. Reorder point e. Point of sales 13. if the output rate is increased but the average unit costs decreases we are experienci a. Market share erosion b. Economies of scale c. Diseconomies of scale d. Value added accounting e. Step functions scale up 14. The fixed-position layout would be MOST appropriate … a. A fast food restaurant b. A doctor’s office C. A casual dining in restaurant d. A cruise ship assembly facility –
AnswerB. Economies of scale. Economies of scale is a concept where the increased scale of production or increased production rate results in fewer inputs required. This happens because fixed costs are constant and have to incurred and average costs are variable. In a situation, where fixed assets are underutilized increasing production would result in average unit costs decrease. For instance : fixed cost for a plant is $100 and variable cost is $1 per unit. The company is producing 50 units which would mean, average cost per unit is 150/50=3$.
If production is increased by 50 units, the average cost will be 200/100=$2. This happens due to economies of scale.