As Output Increases,average Variable Cost First Declines but Eventually Rises

question 31

Multiple Choice

As output increases,average variable cost first declines but eventually rises because

• A) average variable cost is derived by dividing a constant, the total variable cost, by the output rate.
• B) of the effect of the law of diminishing returns.
• C) it represents the addition to total cost resulting from the last unit of output.
• D) at higher output rates, fixed costs per unit are relatively large.
• E) if output is increased, total variable costs decline, then rise.

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Definitions:

Mutually Exclusive

A situation where the occurrence of one event means the other cannot occur at the same time.

NPV

Net Present Value, a calculation used to assess the profitability of an investment, considering the time value of money.

Discounted Payback Period

The period it takes for the cash flows from a capital investment project to equal the initial investment cost, considering the time value of money.