Figure 7.4.2
-Refer to Figure 7.4.2 above. The LAC and LMC curves in the diagram below are consistent with a production function that exhibits:
A) decreasing returns to scale.
B) constant returns to scale.
C) increasing returns to scale.
D) increasing returns to scale for small levels of output, then constant returns to scale, and eventually decreasing returns to scale as output increases.
E) decreasing returns to scale for small levels of output, then constant returns to scale, and eventually increasing returns to scale as output increases.

Question

Figure 7.4.2
-Refer to Figure 7.4.2 above. The LAC and LMC curves in the diagram below are consistent with a production function that exhibits:
A) decreasing returns to scale. 
B) constant returns to scale. 
C) increasing returns to scale. 
D) increasing returns to scale for small levels of output, then constant returns to scale, and eventually decreasing returns to scale as output increases. 
E) decreasing returns to scale for small levels of output, then constant returns to scale, and eventually increasing returns to scale as output increases.

Quizplus · Accepted Answer

The LAC (Long-Run Average Cost) curve initially decreases, indicating increasing returns to scale for small levels of output. It then becomes flat, suggesting constant returns to scale for a range of output levels. Finally, it increases, indicating decreasing returns to scale as output continues to increase. This pattern reflects a production function that exhibits different returns to scale at different levels of output, as described in option D.

Figure 7.4.2 -Refer to Figure 7.4.2 Above. the LAC and LMC Curves