Question

What does variable cost with economies of scale mean?

1. The higher the volume of output, the less it costs to produce one extra unit.
2. The higher the volume of output, the more it costs to produce one extra unit.
3. The costs move in a linear relationship with the volume produced.
4. The costs are fixed and does not change with volume produced.

Answer 1

Explanation:

When more units of a good or service can be produced on a larger scale, yet with (on average) fewer input costs, economies of scale are said to be achieved. Alternatively, this means that as a company grows and production units increase, a company will have a better chance to decrease its costs.

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Answer 2

Answer:

The variable cost with economies of scale means the higher the volume of output, the less it costs to produce one extra unit.

Explanation:

• A variable cost is defined as a cost that will vary with the changes in the size of an output.
• The cost of the variable will decrease with the decrease in an output and it increases with the increase in an output.

• Example of the variable costs:

Raw materials, fuels, power, packing supplies.

• Types of variable costs those are common:

1) Labor

2) Utility expenses

3) Raw materials

4) Commissions

• Uses of the variable cost:

1) It helps in impacting the changes in the volume, variable and fixed cost.

2) It helps in controlling the costs that are acceptable for standard costing and budget that is flexible.

3) It helps in identifying and classifying the costs into a fixed and variable costs that helps in providing information for making decisions.

Therefore, the variable cost with economies of scale means, it is the higher the volume of output, the less it costs to produce one extra unit.

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