The cost per unit decreases as volume increases for which of the following cost behaviors?

• A. Diseconomies of scale
• B. Fixed cost behavior
• C. Economies of scale
• D. Constant returns to scale

Answer: (C)

Verified step by step guidance

1. Understand the concept of cost behavior in relation to production volume. Cost per unit refers to the average cost of producing one unit of output.
2. Define 'Economies of scale': This occurs when increasing the volume of production leads to a lower cost per unit, due to factors like spreading fixed costs over more units or operational efficiencies.
3. Contrast with 'Diseconomies of scale': This is when cost per unit increases as production volume increases, often due to inefficiencies or management challenges at larger scales.
4. Recognize 'Fixed cost behavior': Fixed costs remain constant in total regardless of output level, so the cost per unit decreases as volume increases, but this is a component of economies of scale rather than a standalone behavior.
5. Understand 'Constant returns to scale': This means cost per unit remains unchanged as production volume changes, so cost per unit neither decreases nor increases with volume.