Assume a Firm Is Using 6 Units of Capital and 6

question 24

Multiple Choice

Assume a firm is using 6 units of capital and 6 units of labour to produce 6 baskets. Now it doubles both inputs resulting in a new total of 16 baskets being produced. This firm is experiencing

• A) constant returns to scale.
• B) increasing costs.
• C) diseconomies of scale.
• D) increasing returns to scale.
• E) decreasing returns to scale.

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Definitions:

Predetermined Overhead Rates

An estimated rate used to allocate manufacturing overhead to individual products or job orders, calculated at the beginning of an accounting period.

Factory Overhead

All indirect costs associated with manufacturing, excluding direct labor and materials, like utilities and equipment depreciation.

Accounting Period

A specific period of time used by businesses for accounting purposes, often a fiscal year or quarter, to report financial performance.

Predetermined Overhead Rate

A rate used to allocate manufacturing overhead costs to products based on a predetermined formula.