Question

When the Defense Department ordered 132 new airplanes, the cost per plane was estimated to be $580 million. A cut in the order to 75 planes increased the per plane cost to $800 million. This change in per unit cost can be explained by_________.

Answer 1

Answer:

change in per unit cost of plane will loss of economies of scale

Explanation:

given data

Defense Department ordered new plane = 132

cost per plane = $580 million

order cut = 75 plane

increased cost per plane = $800 million

to find out

change the per unit cost explained by

solution

we know that economies of scale is cost advantages that the firm receive with in crease in scale

but here demand is decrease so result will be lesser in production

so they not able to get cost advantage that they get if they produced = 132 plane instead of 75 plane

so here change the per unit cost of plane will loss of economies of scale