A Cost Function Has Economies of Scale If

question 32

Multiple Choice

A cost function has economies of scale if

• A)average fixed costs fall as production increases.
• B)total costs fall as production increases.
• C)the average total cost falls as production increases.
• D)it is less expensive to produce goods jointly rather than separately.

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Definitions:

Overhead Costs

Indirect costs not directly tied to the production of goods or services, such as rent, utilities, and administrative expenses.

Flexible Budget

A flexible budget adjusts expenses based on changes in actual revenue or other activity levels, providing a more accurate comparison of budgeted versus actual performance.

Predetermined Rate

A rate established in advance to allocate certain costs, often overhead, to products or job orders based on an estimated or expected basis.

Fixed Overhead

Expenses that do not vary with the level of production or sales, such as rent, salaries of permanent staff, and insurance.