Question

As a shoe company produces more shoes the average total cost of each shoe produced increases. This is because there are:______.

a. economies of scale.
b. total fixed costs are decreasing as more shoes are produced.
c. average variable cost is decreasing as more shoes are produced.
d. none of the above.

Answer 1

Answer: d. none of the above.

Step-by-step explanation:

If there were economies of scale, the cost per shoe would be decreasing instead of increasing so there is no economies of scale here. Likewise if total fixed costs were decreasing as more shoes were produced, it would mean that the average total cost would be reducing because of the lower fixed cost component.

The same logic applies to if the average variable cost was decreasing, as more shoes were produced, the average total cost would be reducing as well. As the shoe cost is increasing with more production, none of these are happening.