Identify an Advantage of Adopting a Low Minimum Efficient Scale

question 56

Multiple Choice

Identify an advantage of adopting a low minimum efficient scale.

• A) It helps companies reduce the level of initial capital required for business.
• B) It allows the firm to accommodate demands for local responsiveness.
• C) It allows firms discount political risks and other global capital risks.
• D) A minimum efficient scale of a plant allows decentralization of production.

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Definitions:

Net Present Value

A financial measure that determines the net present value by subtracting the present value of cash outlays from cash inflows over a specified timeframe.

Additional Working Capital

Extra funds that a company requires to finance its day-to-day operations beyond its current working capital.

Salvage Value

The evaluated resale price of an asset after its lifespan of usefulness.

Straight-Line Method

A depreciation technique where an asset loses an equal amount of value each year over its useful life.