Asked by Diamondz R-blissful on May 09, 2024
Verified
Refer to Figure 8.7.3 above. As the firm makes its long-run adjustment, which must be true?
A) It takes advantage of increasing returns to scale.
B) It suffers from decreasing returns to scale.
C) It takes advantage of increasing marginal product.
D) It takes advantage of economies of scale.
E) It takes advantage of diseconomies of scale.
Returns To Scale
Rate at which output increases as inputs are increased proportionately.
Increasing Marginal Product
A situation where each additional unit of input results in an increased amount of output.
Long-Run Adjustment
The process by which firms adjust their production capacity and input usage to new market conditions over time, beyond short-term fluctuations.
- Comprehend and elucidate the notion of long-run equilibrium within a competitive marketplace and elucidate how firms achieve zero economic profits under these conditions.
Verified Answer
EF
Emmanuel FrimpongMay 11, 2024
Final Answer :
D
Explanation :
The firm is experiencing economies of scale as it is able to increase its output without a proportionate increase in its cost. This is evident from the declining long-run average cost curve in the figure.
Learning Objectives
- Comprehend and elucidate the notion of long-run equilibrium within a competitive marketplace and elucidate how firms achieve zero economic profits under these conditions.