The Difference Between Practical Capacity and Theoretical Capacity Is

question 67

Multiple Choice

The difference between practical capacity and theoretical capacity is

• A) Budgeted fixed costs
• B) Expected downtimes
• C) Excess capacity
• D) Nothing, because the two terms have the same meaning

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Definitions:

AFC

In economic terms, typically stands for Average Fixed Cost, which is the fixed costs of production divided by the quantity of output produced.

ATC

Average total cost, which is the total cost of production divided by the quantity of output produced, encompassing both fixed and variable costs.

Economies Of Scale

Companies achieve cost benefits when their production processes become more efficient, leading to a decrease in the per-unit cost as the scale of production grows.

Pin Factory

An example used by Adam Smith to illustrate how division of labor increases productivity.