If Large Fixed Costs Result in ATC Falling as Output

question 52

Multiple Choice

If large fixed costs result in ATC falling as output increases and this occurs over the relevant range of output,this industry is a:

• A)constant-cost industry.
• B)natural monopoly.
• C)network externality.
• D)profit maximizer.

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Definitions:

Margin Of Safety

The difference between actual sales and breakeven sales, quantifying how much output or sales level can drop before a business incurs a loss.

Variable Expenses

Costs that change in direct proportion to changes in the level of activity or production volume, such as raw material costs.

Break-even Point

The point at which total revenue equals total costs, and no profit is earned or lost, often used to determine the feasibility of a business venture or product.

Unit Variable Expenses

Costs that vary directly with the production volume, calculated on a per-unit basis.