One description of the costs of operating a railroad makes the following observa

Question

One description of the costs of operating a railroad makes the following observation:"The fixed ... expenses which attach to the operation of railroads ... are in the nature of a tax upon the business of the road; the smaller the [amount of] business, the larger the tax."Source: Quoted in Alfred D. Chandler, Jr., Thomas K. McCraw, and Richard Tedlow, Management Past and Present. Cincinnati: South-Western, 2000, pp. 2-27. In what sense is this tax smaller when the amount of business is larger? As production increases, variable costs can be allocated over a greater amount of output, decreasing the average cost of the tax. OB. As production increases, fixed costs can be allocated over a greater amount of output, decreasing the average cost of the tax. As production increases, the marginal cost of the tax decreases, decreasing the average cost of the tax. As production increases, the total cost of the tax decreases, decreasing the average cost of the tax. As production increases, fixed costs can be allocated over a greater amount of output, increasing the average cost of the tax.

Explanation / Answer

the correct option is b.

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