Question

Which of these costs will increase or decrease with increase or decrease in production?

• A. Marginal cost
• B. Fixed cost
• C. Financial cost
• D. All of the above

Answer 1

Answer: (A)

Marginal cost

Option A is correct.

As the marginal product of the variable input decreases, due to the law of diminishing marginal returns, a firm must hire increasingly more of the variable input to get the same increase in output.

Fixed costs do not vary with the production level. Total fixed costs remain the same, within the relevant range. However, the fixed cost per unit decreases as production increases, because the same fixed costs are spread over more units.

The totalexpenses associated with securing financing for a project or businessarrangement. Financing costs may includeinterestpayments, financing feescharged by intermediaryfinancial institutions, and the fees or salaries of any personnel required to complete the financing process.