Diagram Reveals Rising Variable Costs per Unit

Steps:

• Identify key cost curves in the diagram, such as total cost, fixed cost, and variable cost lines.
• Calculate variable costs per unit by dividing total variable costs by output quantity at multiple points.
• Observe the trend: as output increases, variable cost per unit rises, indicating inefficiency or rising input prices.
• Compare to fixed costs, which remain constant, confirming the change is in variable components.

Why D is correct:

• Variable costs per unit = total variable costs / quantity; the diagram shows this ratio increasing with output, per the law of variable proportions where marginal costs rise after a point.

Why the others are wrong:

• A: Fixed costs remain constant regardless of output, as shown by the horizontal line.
• B: Total costs as a percentage of sales require revenue data, not provided in the diagram.
• C: The diagram depicts an upward slope for variable costs per unit, not a decrease.

Final answer: D