ch19 costs scale of prod and break even analysis

Question 1

what is a COST?

Answer 1

payments made by firms during the production process

Question 2

what is a Fixed Costs?

Answer 2

are costs that do not vary as the production increases

Question 3

what are Variable Costs?

Answer 3

these are costs that vary directly as the output changes

Question 4

what is Break-Even (level of output)?

Answer 4

is the output that needs to be produced and sold in order to start making a profit.

Question 5

what are the advantages of Break-even charts?

Answer 5

• Managers can look at the graph to find out the profit or loss at each level of output
• Managers can change the costs and revenues and redraw the graph to see how that would affect profit and loss.
• The break-even chart can also help calculate the safety margin- the amount by which sales exceed break-even point.

Question 6

what are the disadvantages of Break-even charts?

Answer 6

• They are constructed assuming that all units being produced are sold. I\
• Fixed costs may not always be fixed if the scale of production changes.
• Break-even charts assume that costs can always be drawn using straight lines.

Question 7

Define Economies of Scale?

Answer 7

are the factors that lead to a reduction in average costs as a business increases in size.
diseconomies of scale is the opposite.

Question 8

what are the Economies of Scale?

Answer 8

• marketing eos
• technical eos
• financial eos
• managerial eos
• purchasing eos