Question

The normal production range for ABC Company is from 1,000 to 2,000 units. During the

previous month the production level was 1,500 units, and during the current month the
production level is 1,200. As a result of this reduction in units, total variable costs has:
O decreased
O cannot be determined
O stayed the same
O increased

Answer 1

In response to the student's question, ABC Company's total variable costs would have decreased as a result of the reduction in production levels.

Step-by-step explanation:

The question concerns the changes in total variable costs for ABC Company due to a reduction in production levels. Variable costs are those costs that vary directly with the level of production. Based on the information provided, when production decreases from 1,500 to 1,200 units, we would expect the total variable costs to also decrease. This is because variable costs are incurred for each unit produced, so producing fewer units would result in lower costs.

Additionally, the concept of economies of scale suggests that as production increases, the average cost per unit decreases. However, this relates to average costs, not variable costs, and is not directly relevant to the question about total variable costs. Therefore, with the reduction in quantity produced by ABC Company, the total variable costs would have decreased.