Question

A camera company has enough capacity to produce 20,000 cameras per year for mobile phones. This year it is producing 10,000 cameras and is planning to produce 15,000 next year. How would the unit and total manufacturing costs change if this plan is implemented, other things being equal?

Answer 1

When the company is trying to expand the production capacity and trying to optimise the the full production capacity, then there would be following consequences-

A.variable cost which would be including all kinds of costs like manufacturing cost, unit cost are going to increase as extra amount of units are being produced by the company.

B. fixed cost related to production will always be remaining the same like rent cost or depreciation cost.fixed cost for a given level of production will always be remaining at a constant level because they are already fixed in nature.

so it can be said that the variable cost related to increase in production of going to increase with increase in units where are fixed costs are remaining the same