When the Defense Department Ordered 132 New Airplanes, the Cost

question 18

Multiple Choice

When the Defense Department ordered 132 new airplanes, the cost per plane was estimated to be $580 million. A cut in the order to 75 planes increased the per plane cost to $800 million. This change in per unit cost can be explained by

• A) a move to minimum efficient scale.
• B) the law of diminishing returns.
• C) the loss of economies of scale.
• D) an increase in total fixed cost.

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