Which of the following statements is correct if a firm's capacity output increases from 300 to 600 and its total costs rise from $40,000 to $78,000?
A)The firm is experiencing constant returns to scale.
B)The firm is experiencing decreasing returns to scale.
C)The firm is experiencing increasing returns to scale.
D)The firm's long-run average cost must have decreased but its short-run average cost could have either decreased or increased.

Question

Quizplus · Accepted Answer

When a firm's capacity output increases and its total costs rise, it indicates that the firm is experiencing increasing returns to scale. This is because the firm is able to produce a higher output with less cost per unit as it scales up its production. The total cost may have increased due to certain fixed costs involved in scaling up.

Which of the Following Statements Is Correct If a Firm's