Asked by gillian williams on May 12, 2024
Verified
If a firm experiences constant returns to scale at all output levels, then its long-run average total cost curve would
A) slope downward.
B) be horizontal.
C) slope upward.
D) slope downward for low output levels and upward for high output levels.
Constant Returns to Scale
A situation in which output increases by the same proportion as inputs when the scale of production is changed.
Long-run Average Total Cost
The average total cost when all factors of production are variable and economies of scale are fully exploited, indicating the lowest possible cost per unit.
- Acquire knowledge on the concepts of economies of scale, diseconomies of scale, and constant returns to scale.
- Explain the behavior of long-term and short-term costs and their impact on business decisions.
Verified Answer
CB
CLINTON BrooksMay 16, 2024
Final Answer :
B
Explanation :
Constant returns to scale imply that increasing all inputs by a certain percentage leads to an increase in output by the same percentage, resulting in constant long-run average total costs at all output levels. This is represented by a horizontal long-run average total cost curve.
Learning Objectives
- Acquire knowledge on the concepts of economies of scale, diseconomies of scale, and constant returns to scale.
- Explain the behavior of long-term and short-term costs and their impact on business decisions.