Question

but when all costs added together, total costs do what as service level increases?but then total costs do what

Answer 1

As service level increases, total costs also increase. This is because when a firm produces higher quantities of output, it requires greater quantities of inputs, which cost more to acquire. The cost is the sum of fixed costs and variable costs.

Step-by-step explanation:

As service level increases, total costs also increase. This is because when a firm produces higher quantities of output, it requires greater quantities of inputs, which cost more to acquire. The cost is the sum of fixed costs and variable costs.

For example, let's say a company has fixed costs of $160. At zero production, these fixed costs are still present. As production increases, variable costs are added to the fixed costs, resulting in the total cost. So as service level increases, both fixed and variable costs increase, hence increasing the total costs.