External Economies of Scale Arise When the Cost Per Unit

question 25

Multiple Choice

External economies of scale arise when the cost per unit

• A) falls as the industry grows larger and rises as the average firm grows larger.
• B) rises as the industry grows larger and falls as the average firm grows larger.
• C) falls as the industry and the average firm grows larger.
• D) remains constant over a broad range of output.
• E) rises as the industry and the average firm grows larger.

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Definitions:

Coupon Rate

The annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity.

Equity Financed

The method of funding a business through selling shares of the company to investors, thus raising capital without incurring debt.

Cost of Equity

The return a company requires to decide if an investment meets capital return requirements, often used in calculating the weighted average cost of capital.

Cost of Debt

The effective rate that a company pays on its current debt, incorporating both interest payments and issuance costs.