The cost to manufacture one unit of Killian Audio Products' best-selling hearing aid, the Zone, is $67.50. The CFO of the company determines that if the company expands the output of its biggest U.S. plant by 20 percent, the unit cost would be only $42.50.
This analysis is based on the concept of:

A. minimum efficient scale.
B. Six Sigma.
C. economies of scale.
D. lean production.
E. total quality management.

Question

12-03-2020
Business

contestada

The cost to manufacture one unit of Killian Audio Products' best-selling hearing aid, the Zone, is $67.50. The CFO of the company determines that if the company expands the output of its biggest U.S. plant by 20 percent, the unit cost would be only $42.50.
This analysis is based on the concept of:

A. minimum efficient scale.
B. Six Sigma.
C. economies of scale.
D. lean production.
E. total quality management.

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ogechukwubenedict ogechukwubenedict · Answer 1 · 2020-03-23T16:04:28+01:00

Answer: C. economies of scale.

Explanation: The analysis is a concept of economies of scale. It's is the characteristics of a production process in which an increase in the scale of the firm (expanding the output of its biggest US plant by 20%) causes a decrease in the long run average cost of each unit (decrease from $67.50 to $42.5 per unit cost).

The size of the company matters when it comes to economies of scale (cost advantages reaped by companies when production processes becomes efficient) because the larger the business, the more the cost savings.