If Long-Run Average Total Cost Decreases as the Quantity of Output

question 38

Multiple Choice

If long-run average total cost decreases as the quantity of output increases, the firm is experiencing

• A)economies of scale.
• B)diseconomies of scale.
• C)coordination problems arising from the large size of the firm.
• D)fixed costs greatly exceeding variable costs.

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Definitions:

Contribution Margin

The amount by which the sales of a product exceed its variable costs, representing the portion of sales revenue that contributes to covering fixed costs and generating profit.

Unit Product Cost

The total cost (direct materials, direct labor, and overhead) to produce one unit of a product.

Absorption Costing

An accounting method that includes all manufacturing costs (direct material, direct labor, and both variable and fixed manufacturing overhead) in the cost of a product.

Net Operating Income

A company's total earnings from its operations, excluding taxes and interest.