A firm has a production capacity of 20,000 units. When 10,000 units are produced, fixed costs are $16 per unit. Therefore, when 20,000 units are produced fixed costs will_______:Question 9Select one:a.remain at $16 per unitb.increase to $32 per unitc.total $320,000d.decrease to $8 per unit
Question
A firm has a production capacity of 20,000 units. When 10,000 units are produced, fixed costs are 16 per unit. Therefore, when 20,000 units are produced fixed costs will_______:Question 9Select one:a.remain at 16 per unitb.increase to 320,000d.decrease to $8 per unit
Solution
Fixed costs are costs that do not change with the level of output. Therefore, even if the production capacity doubles from 10,000 units to 20,000 units, the total fixed costs will remain the same. However, the fixed cost per unit will decrease because the same total amount is spread over more units.
Here's how to calculate it:
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First, find the total fixed costs. Since the fixed cost is 16/unit = $160,000.
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Then, calculate the fixed cost per unit at a production level of 20,000 units. Since the total fixed costs remain the same, the fixed cost per unit is 8/unit.
So, when 20,000 units are produced, fixed costs will decrease to 8 per unit.
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