Consider the following three production processes: Process A has high fixed costs and low variable costs, Process B has low fixed costs and high variable costs, and Process C has moderate fixed and variable costs. Which process will have the lowest total cost at low production volume?

• A. Process B
• B. Process C
• C. Process A

Answer: (A)

Verified step by step guidance

1. Understand the components of total cost: Total cost (TC) is the sum of fixed costs (FC) and variable costs (VC), expressed as \(\text{TC} = \text{FC} + \text{VC}\).
2. Recognize that fixed costs are constant regardless of output, while variable costs change with the level of production volume.
3. At low production volume, variable costs are relatively small because fewer units are produced, so the fixed cost component has a larger impact on total cost.
4. Compare the processes: Process A has high fixed costs and low variable costs, Process B has low fixed costs and high variable costs, and Process C has moderate fixed and variable costs.
5. Since fixed costs dominate at low production volume, the process with the lowest fixed costs (Process B) will have the lowest total cost at low output levels.