Larger Firms Can Produce a Product at Lower Average Cost

question 4

Multiple Choice

Larger firms can produce a product at lower average cost than small firms when

• A)Economies of scope exist.
• B)Diseconomies of scale exist.
• C)Economies of scale exist.
• D)Cost complementarities exist.

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Definitions:

Fixed Costs

Costs that remain constant regardless of the amount of goods produced or sold, like wages or lease payments.

Marginal Costs

The extra expense incurred from making one more unit of a product or service.

Average Cost

The total cost of production divided by the number of goods produced, showing the cost of producing each unit.

Marginal Cost

The cost incurred to produce one additional unit of a product or service.