What effect can an increase in production volume has on per unit fixed costs, per unit variable costs, total fixed costs, and total variable costs?

An increase in production volume can have various effects on different cost components. Let's break it down step by step:

1. Per unit fixed costs: Per unit fixed costs refer to fixed costs divided by the number of units produced. As production volume increases, the total fixed costs remain unchanged. However, since the costs are spread over a larger number of units, the per unit fixed costs decrease. This is because the fixed costs are divided among a larger quantity, reducing the cost burden per unit.

2. Per unit variable costs: Per unit variable costs refer to variable costs divided by the number of units produced. In general, per unit variable costs tend to remain constant or decrease slightly as production volume increases. This is due to economies of scale. As production volume increases, there may be opportunities to achieve efficiencies in the production process, leading to lower costs per unit.

3. Total fixed costs: Total fixed costs remain constant regardless of the production volume. Fixed costs are incurred irrespective of the number of units produced. Examples of fixed costs include rent, insurance, and salaries of administrative staff. These costs do not fluctuate with changes in production volume.

4. Total variable costs: Total variable costs increase with the increase in production volume. Variable costs are directly related to the number of units produced. As production volume rises, more resources (such as materials and labor) are required, leading to a proportional increase in total variable costs.

In summary, as production volume increases:
- Per unit fixed costs decrease.
- Per unit variable costs tend to remain constant or decrease slightly due to economies of scale.
- Total fixed costs remain constant.
- Total variable costs increase.