Asked by Sarah Boktor on Apr 25, 2024
Verified
The long-run average total cost of producing 100 units of output is $4,while the long-run average cost of producing 110 units of output is $4.These numbers suggest that between 100 and 110 units of output,the firm producing this output has:
A) economies of scale.
B) diseconomies of scale.
C) constant returns to scale.
D) diminishing returns.
Returns to Scale
The rate at which output increases as inputs are proportionally increased, indicating either increasing, constant, or decreasing efficiency in production.
Long-Run Average Cost
The average cost per unit of output when all inputs, including capital, are variable, allowing for the adjustment of all factors in production to achieve the lowest cost.
Output
The quantity of goods or services produced in a given period of time.
- Determine the impact of output variations on long-run average total costs.
Verified Answer
IA
Isaac Appiah1 week ago
Final Answer :
C
Explanation :
The fact that the long-run average total cost is the same for producing 100 and 110 units suggests that the firm is experiencing constant returns to scale, meaning that as output increases, costs do not significantly increase or decrease. Neither economies of scale (a decrease in long-run average cost as output increases) nor diseconomies of scale (an increase in long-run average cost as output increases) are present in this scenario. Diminishing returns, which refers to a decrease in marginal product as additional units of a variable input are added to a fixed input, is not relevant to determining long-run average cost.
Learning Objectives
- Determine the impact of output variations on long-run average total costs.