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

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

Answer: (C)

Verified step by step guidance

1. Understand the concept of cost behavior in relation to production volume. Cost behavior describes how costs change when the level of output changes.
2. Review the definition of fixed cost behavior: fixed costs remain constant in total regardless of output level, so cost per unit decreases as output increases because the same total cost is spread over more units.
3. Examine constant returns to scale: this means that output increases proportionally with inputs, so the cost per unit remains constant as volume increases.
4. Define economies of scale: this occurs when increasing production leads to a lower cost per unit due to factors like operational efficiencies, bulk purchasing, or specialization.
5. Contrast with diseconomies of scale: this is when cost per unit increases as production volume increases, often due to inefficiencies from managing a larger scale.