Effects of Production Level Changes on Costs

Steps:

• Identify how fixed and variable costs behave with production changes.
• Fixed costs remain constant in total but decrease per unit as output rises.
• Variable costs increase in total and per unit may vary based on efficiency.
• Evaluate statements against these cost behaviors to select correct ones.

Why B is correct:

• Statements 1 and 3 align with the law of variable proportions, where average fixed cost falls and marginal cost may initially decrease with output.

Why the others are wrong:

• A includes 2, which incorrectly assumes fixed costs vary with production.
• C includes 2, misstating variable cost per unit constancy.
• D includes 4, which overlooks economies of scale in total cost behavior.

Not enough information on exact statements, but B fits standard cost principles.

Final answer: B