Figure 7.4.1
-Assume that a firm's production process is subject to increasing returns to scale over a broad range of outputs. Long-run average costs over this output will tend to:
A) increase.
B) decline.
C) remain constant.
D) fall to a minimum and then rise.

Question

Figure 7.4.1
-Assume that a firm's production process is subject to increasing returns to scale over a broad range of outputs. Long-run average costs over this output will tend to:
A) increase. 
B) decline. 
C) remain constant. 
D) fall to a minimum and then rise.

Quizplus · Accepted Answer

Increasing returns to scale means that as a firm increases its scale of production by increasing all inputs, output increases at a faster rate, leading to lower long-run average costs. Therefore, long-run average costs over a broad range of outputs will tend to decline.

Figure 7.4.1 -Assume That a Firm's Production Process Is Subject to Increasing