Impact of Average Cost on Profits
Consider the claim that a 50 percent decrease in average cost will result in a 50 percent increase in profits, assuming the cost reduction also improves efficiency. Why is this statement false?
A
Profits will increase by 100 percent.
B
The cost reduction will have no impact on efficiency because the increase in profits is offset by the decrease in costs.
C
Profits will increase by more than 50 percent.
D
Profits will increase by less than 50 percent.
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