Economics · Theory of Production and Cost
Freja is preparing a short-term budget for a cost incurred by her company. She predicts that the company will experience significant increases in output during this period. How would she expect the average cost per unit to change within the short term?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The cost per unit would fall for the entire period due to the increased output
- 2The cost per unit would initially fall, then start to rise again due to diseconomies of scale
- 3The cost per unit would be unlikely to change in the short term
- 4The cost per unit would initially fall, then start to rise again due to the law of diminishing returns✓
Correct answer
The cost per unit would initially fall, then start to rise again due to the law of diminishing returns
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