When 20,000 units are produced, fixed costs are $16 per unit. Therefore, when 40,000 units are produced fixed costs will:

A) increase to $32 per unit
b. remain at $16 per unit
c. decrease to $8 per unit
d. total $640,000

c. decrease to $8 per unit

Explanation:

Fixed costs are the expenses that do not change with the production level. They remain constant per period. Examples include rent and depreciation.

Determining the fixed cost per unit is by dividing the total units produced by the total fixed costs. As per the economies of scale theory, the larger the output, the lower the cost of fixed cost per unit. The reason being that the fixed cost amount will be spread among a large volume of production.

In this case, At 20,000 units, the fixed cost per unit is $16,

An increase in production to 40,000 units is a 100 percent increase. The fixed cost per unit will decrease by 100 percent. Fixed costs will be divided among more units at the double the original rate.

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