Which of the following is a consequence of a business operating significantly below its full production capacity?

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Question

Which of the following is a consequence of a business operating significantly below its full production capacity?

Accepted Answer

Fixed costs are spread over fewer units, increasing average cost per unit — When a business operates below full capacity, it produces fewer units but fixed costs remain the same, so each unit bears a larger share of fixed costs, raising average cost per unit. Option A describes the benefit of operating at or near full capacity. Option B describes overproduction. Option D is incorrect because variable costs per unit remain constant regardless of output level at IGCSE level.

Answer

The business produces more output than the market demands

Answer

Fixed costs are spread over fewer units, increasing average cost per unit

Answer

Fixed costs are spread over more units, reducing average cost

Answer

Variable costs per unit increase as output falls

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