Big Summer Pools is a relatively new company that installs residential pools. The manager has noticed that has the company continues to increase the number of pools installed, its short- run average total cost are not changing. This information suggests that Big Summer Pools is experiencing ________.

Question

Big Summer Pools is a relatively new company that installs residential pools. The manager has noticed that has the company continues to increase the number of pools installed, its short- run average total cost are not changing. This information suggests that Big Summer Pools is experiencing  ________.

Quizplus · Accepted Answer

Constant returns to scale occurs when increasing all inputs by a certain percentage leads to an equivalent increase in output. In this case, as Big Summer Pools is increasing the number of pools installed, its short-run average total costs are not changing, suggesting that the company is not experiencing economies of scale (where increasing output leads to a decrease in average total costs) or diseconomies of scale (where increasing output leads to an increase in average total costs). This indicates that the company is experiencing constant returns to scale. There is no information provided to suggest that technological advances are responsible for the lack of change in average total costs.

Big Summer Pools Is a Relatively New Company That Installs