Asked by Michelle Kuruc on May 09, 2024
Verified
Buffalo Aircraft doubles the amount of all of the inputs it uses-the factory doubles in size and twice as many workers are hired.After this expansion,the number of aircraft produced triples.If the price of inputs is unchanged,this means that Buffalo Aircraft is operating with:
A) increasing marginal cost.
B) economies of scale.
C) increasing average total cost.
D) decreasing average variable cost.
Economies of Scale
Refers to the cost advantage that arises with increased output of a product, leading to a reduction in the per-unit cost.
Marginal Cost
An alternative phrasing expressing the additional cost incurred from the production of the next unit of output.
Average Total Cost
The cost per unit is calculated by dividing the overall production cost by the quantity of units produced.
- Acquire knowledge on the theory behind economies and diseconomies of scale.
- Analyze the impact of changes in scale on production costs and output.
Verified Answer
IT
Ingrid TorresMay 12, 2024
Final Answer :
B
Explanation :
When Buffalo Aircraft doubles the amount of all inputs, the factory expands and twice as many workers are hired, indicating that the company is experiencing economies of scale. This is because the inputs are being increased in a proportionate manner that is resulting in a larger output with a lower per-unit cost. The fact that the number of aircraft produced triples after the expansion also supports the idea of economies of scale.
Learning Objectives
- Acquire knowledge on the theory behind economies and diseconomies of scale.
- Analyze the impact of changes in scale on production costs and output.