Which of the Following Is True of a Firm That

question 44

Multiple Choice

Which of the following is true of a firm that faces increasing returns to scale?

• A) An increase in the quantity of one input will increase output by a greater proportion.
• B) As the quantity of all inputs are increased, the average cost of production will increase.
• C) A given increase in the quantity of all inputs will increase output by a greater proportion.
• D) As the quantity of one input is increased, its marginal product will increase at an increasing rate.
• E) As the quantity of one input is increased, the marginal cost of production will decline.

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Definitions:

Fixed Manufacturing Overhead

Indirect production costs that remain constant regardless of the level of production.

Volume Variance

A financial metric that measures the difference between the actual volume of production and the expected (or budgeted) volume, which can affect costs.

Denominator Level

The quantity or level used in cost accounting as a divisor to allocate fixed costs among units of output, helping in understanding per unit costs.

Predetermined Overhead Rate

A rate used to allocate manufacturing overhead to products or job orders, calculated based on estimated costs and activity levels before the period begins.