Asked by Jendayi Campbell on Jul 21, 2024
Verified
If a profit-maximizing competitive firm has constant returns to scale, then its long-run profits must be zero.
Constant Returns To Scale
a situation in production where increasing all inputs by the same percentage results in output increasing by that same percentage.
Long-run Profits
The potential earnings of a business over a period long enough for all inputs to be adjusted, considering the firm's ability to enter or exit markets.
- Explain the principles of diminishing returns to scale and their implications on firm's profit.
Verified Answer
CO
Clara OwensJul 24, 2024
Final Answer :
True
Explanation :
In the long run, a competitive firm operating under constant returns to scale will face competition that drives prices down to equal average total costs, resulting in zero economic profit.
Learning Objectives
- Explain the principles of diminishing returns to scale and their implications on firm's profit.