When a firm has surplus capacity (that is, no resource constraints), relevant costs for decision-making (for example, determining short-term product mix) will, relative to the situation where the firm faces one or more resource constraints, be:
A) Lower.
B) The same.
C) Greater.
D) It varies—that is, it is impossible to tell without further information.

Question

Quizplus · Accepted Answer

When a firm has surplus capacity, there are no resource constraints to limit production or affect the cost of producing additional units. This means that the additional units would not require incremental investments in resources, labor, or equipment, resulting in lower relevant costs. Therefore, relevant costs for decision-making would be lower in such a situation.

When a Firm Has Surplus Capacity (That Is, No Resource