A Firm's Long-Run Average Cost Curve Is Increasing as Output

question 213

Multiple Choice

A firm's long-run average cost curve is increasing as output increases over all levels of output. As a result

• A) small firms and large firms will have identical average costs.
• B) there should be only one firm in the industry.
• C) small firms would have higher average costs of production than large firms.
• D) there should be more than one firm in the industry.

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Definitions:

Absorption Costing

A costing method that includes all manufacturing costs—direct materials, direct labor, and both variable and fixed manufacturing overhead—in the cost of a product.

Manufacturing Margin

The difference between the sales revenue of manufactured goods and the direct costs associated with producing them.

Contribution Margin

The difference between the sales revenue of a product and its variable costs, used to cover fixed costs and generate profit.

Absorption Costing

A costing technique that incorporates all costs associated with production, including both fixed and variable expenses, into the product's price.