A Firm's Production Process Shows Constant Returns to Scale

question 79

Multiple Choice

A firm's production process shows constant returns to scale.It can produce 5,000 widgets at a total cost of $2,500 and 10,000 widgets at an average cost of

• A)$10,000.
• B)$5,000.
• C)$2,000.
• D)$0.50.

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Definitions:

Cost Category

A classification of costs based on their nature or function within a business, often used for accounting and budgeting purposes.

Step-Down Method

The step-down method is a cost allocation approach used in accounting, which assigns overhead costs to various departments in steps, based on specified allocation bases.

Operating Departments

The divisions within a company where the primary functions related to the production of goods or provision of services are carried out.

Direct Method

An accounting approach used to allocate service department costs directly to producing departments without considering services rendered between service departments.