Discussion
Automating a process typically
Answer: A
Correct answer: raises fixed cost and lowers variable cost
Automation substitutes capital for labour: the machine must be bought, housed, financed and depreciated whether it runs or not, while the labour it displaces was a cost per unit. The break-even point therefore moves to a higher volume, but beyond it the wider contribution margin makes profit grow faster. The decision is thus a judgement about expected volume, not about cost per unit alone.
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