Question

As production increases:

A. total cost will increase and then decrease.
B. total cost will increase as fixed costs increase.
C. total cost will increase and them plateau ( stay at the same level).
D. total cost will keep increasing.

Answer 1

Answer:

Correct option is (D)

Explanation:

Total cost is a sum of Total fixed cost and total variable cost. Fixed cost does not change with the change in number of units produced. Variable cost on the other hand increases with the increase in production.

So, initially fixed cost is higher than variable cost at a certain production level. As production increases, fixed cost is spread across units and per unit fixed cost falls but variable cost keeps increasing, so total cost keep increasing with increase in production because of variable cost component.