Asked by chess for giants on Sep 24, 2024

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​You would expect that your firm is experiencing a constant returns to scale if

A) ​Long run average costs increase with output
B) Long run average costs decrease with output
C) Long run average costs are constant with respect to output
D) ​None of the above

Long Run

A period during which all inputs, including capital and labor, can be adjusted by firms. It is characterized by the flexibility of adjusting to conditions without any fixed constraints.

Average Costs

It's the cost associated with producing each unit, found by dividing the entire production expenses by the number of units produced.

Returns to Scale

The rate at which output increases as inputs are increased proportionally, indicating how efficiently larger production scales affect production volume.

  • Analyze the influence of returns to scale on the long-term average costs.
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IM
Ishika Mohan4 days ago
Final Answer :
C
Explanation :
Constant returns to scale means that the long run average costs remain constant even as output increases. Option A is incorrect because increasing long run average costs with output signifies decreasing returns to scale (i.e. the output increases at a slower rate than the increase in input leading to higher costs per unit of output). Option B is incorrect because decreasing long run average costs with output signifies increasing returns to scale (i.e. larger output can be produced at lower cost per unit as the scale of production increases). Option D is incorrect since only option C accurately represents the definition of constant returns to scale.