Which of the following statements is correct if a firm builds a larger plant and,at any particular output,its short-run average cost increases?
A)Diseconomies of scale must be present.
B)Economies of scale must be present.
C)Constant returns to scale must be present.
D)Economies,diseconomies,and constant returns to scale are all possible.

Question

Quizplus · Accepted Answer

If short-run average cost increases with the expansion of the plant, it implies that the cost per unit is increasing with the increase in output. This can happen due to various factors, such as inefficient use of resources, labor disputes, or insufficient management skills. This situation is referred to as diseconomies of scale. Thus, option A is the correct choice. Options B, C, and D are incorrect because they suggest the presence of economies of scale, constant returns to scale or a combination of economies, and diseconomies of scale, which is inconsistent with the given scenario.

Which of the Following Statements Is Correct If a Firm