Suppose a firm experiences decreasing returns to scale. This is shown graphically by
A) a downward- sloping long- run marginal- cost curve.
B) a downward- sloping long- run average cost curve.
C) a horizontal long- run average cost curve.
D) an upward- sloping long- run average cost curve.
E) an increasing marginal product curve.

Question

Quizplus · Accepted Answer

Decreasing returns to scale mean that the increase in the amount of inputs used leads to less than proportionate increase in output. This results in higher costs per unit of output, which is reflected in an upward-sloping long-run average cost curve.

Suppose a Firm Experiences Decreasing Returns to Scale