Consider the following statements when answering this question: I. A technology with increasing returns to scale will generate a long-run average cost curve that has economies of scale.
II) Diminishing returns determine the slope of the short-run marginal cost curve, whereas returns to scale determine the slope of the long-run marginal cost curve.
A) I is true, and II is false.
B) I is false, and II is true.
C) Both I and II are true.
D) Both I and II are false.

Question

Quizplus · Accepted Answer

Statement I is true because a technology with increasing returns to scale will result in lower costs per unit with increased output, leading to economies of scale in the long run. Statement II is also true because the short-run marginal cost curve is affected by diminishing returns while the long-run marginal cost curve is influenced by returns to scale.

Consider the Following Statements When Answering This Question: I