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Question: you own a company with multiple lines of businesses one...

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You own a company with multiple lines of businesses. One of them is a plastic production plant that manufactures plastic parts for computer manufacturers as well as other businesses. When producing fewer than or equal to 20 units per week, the total cost function of the plant is described as TC(Q)=Q2+Q+10. If it were to produce more than 20 (per week), a second facility will be activated, changing the total cost function to TC(Q)=2Q+400.

The average cost of producing 50 units in a week is TC(50)/50=(2x50+400)/50=10, while the average cost of producing 100 units in a week is TC(100)/100=(2x100+400)/100=6. Somehow, doubling the output level lowers average cost (or per unit cost). What best explains this observation?

A) Economies of scope due to deploying under-used resources

B) Economies of scale due to learning

C) Economies of scale as labor productivity increases through accumulated experience

D) Economies of scale as fixed cost is spread over more units

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