Ask Question
8 August, 22:36

A process has low fixed costs and high variable costs. It is currently capacity-constrained. Will the impact of an efficiency improvement be small or large?

+4
Answers (1)
  1. 8 August, 22:51
    0
    Small

    Explanation:

    Fixed costs are the costs that do not change when output level changes, while variable costs are costs that change as output quantity changes.

    When a production process is capacity constrained, it implies that there is a factor that does not allow it to produce more output. Examples of such factors are minor bottlenecks, constrained designs and resources, and others.

    A process is said to be efficient when it can avoid waste of resources in producing desired output.

    Efficiency improvement therefore occurs when more output can be produced with less resources.

    In the question, given that the process is currently capacity-constrained, efficiency improvement will result in producing more output at higher costs because of high variable costs despite that the process has low fixed costs.

    As a result, the impact of an efficiency improvement will be small because producing more output will result in incurring higher cost due to high variable costs that change as quantity of output changes. That is, the impact of efficiency improvement will be small because high variable costs with low fixed cost will result in higher production cost.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “A process has low fixed costs and high variable costs. It is currently capacity-constrained. Will the impact of an efficiency improvement ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers