For a constant-returns-to-scale production function,
A)marginal costs are constant but the average cost curve has a U-shape.
B)both average and marginal costs are constant.
C)marginal cost has a U-shape; average costs are constant.
D)both average and marginal cost curves are U-shaped.

Question

Quizplus · Accepted Answer

In a constant-returns-to-scale production function, increasing all inputs by the same percentage leads to a proportional increase in output. This means that the average cost of producing each unit remains constant regardless of the level of output, which in turn implies that marginal costs are also constant. Therefore, the correct answer is B.

For a Constant-Returns-To-Scale Production Function