Internal Economies of Scale Arise When the Cost Per Unit

question 18

Multiple Choice

Internal economies of scale arise when the cost per unit

• A)falls as the industry grows larger.
• B)falls as the average firm grows larger.
• C)rises as the average firm grows larger.
• D)rises as the industry grows larger.
• E)remains constant over a broad range of output.

---

Definitions:

Variable Costing

A costing method that includes only variable production costs (direct materials, direct labor, and variable manufacturing overhead) in product costs.

Period Cost

Expenses that are not directly tied to the production process and are expensed in the period they are incurred, such as selling and administrative expenses.

Variable Costing

A costing method that includes only variable production costs—direct materials, direct labor, and variable manufacturing overhead—in unit product costs.

Unit Product Cost

The total cost to produce one unit of a product, including both direct costs and allocated indirect costs.