As a Firm Produces More and More DVDs, the Average

question 33

Multiple Choice

As a firm produces more and more DVDs, the average cost of producing each DVD falls. A curve showing the behavior of the average cost of a DVD as more DVDs are produced

• A) would be positively and then negatively sloped.
• B) would be positively sloped.
• C) would be horizontal.
• D) would be negatively sloped.

---

Definitions:

Machine-Hours

A measure of the amount of time machinery is in operation, commonly used as a basis for allocating machine related costs to products.

Manufacturing Overhead

All indirect costs associated with the production process, including equipment maintenance, utilities, and factory management salaries.

Predetermined Overhead Rate

A rate used to allocate manufacturing overhead costs to products, based on a planned level of activity.

Capacity

The maximum level of output that a company can sustain to produce in a given period.