The Percent of Sales Method Relies on the Fact That

question 18

Multiple Choice

The percent of sales method relies on the fact that capacity increases are ________,even though in practice such increases are ________.

• A)incremental,lumpy
• B)incremental,incremental
• C)lumpy,incremental
• D)lumpy,lumpy
• E)incremental,smooth

---

Definitions:

Law of Diminishing Returns

The economic principle stating that as one input variable is increased, there is a point at which the marginal gain in output begins to decrease, holding all other inputs constant.

Diseconomies of Scale

Diseconomies of scale occur when a firm's costs per unit increase as the scale of its output increases, often due to inefficiencies that arise from managing a larger organization.

Average Fixed Costs

Costs that do not change with the level of output and are spread over the units of output, thus decreasing per unit as production increases.

Output Increases

Output increases refer to a situation where there is a rise in the quantity of goods or services produced by a company or within an economy.