Figure 8.2
-Refer to Figure 8.2. 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.

Question

Figure 8.2
-Refer to Figure 8.2. 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.

Quizplus · Accepted Answer

The firm in the long-run must take advantage of economies of scale to maximize profits. This means that as the firm increases its production, its average cost per unit decreases due to factors such as specialization and larger-scale operations. Option A is incorrect because increasing returns to scale occur in the short run, not the long run. Option B is incorrect because decreasing returns to scale would result in higher average costs as production increases, leading to lower profits. Option C is incorrect because increasing marginal product does not necessarily translate to lower average costs. Option E is incorrect because diseconomies of scale would also lead to higher average costs as output increases.

Figure 8.2 -Refer to Figure 8.2. as the Firm Makes Its Long-Run