If a firm builds a larger plant and constant returns to scale apply,which of the following statements is correct?
A)The capacity output of the larger plant has a lower average cost.
B)The capacity output of the larger plant has the same average cost.
C)Economies of scale are present.
D)LRAC will decrease as output increases.

Question

Quizplus · Accepted Answer

Constant returns to scale means that doubling all inputs will result in a doubling of output. Therefore, the average cost per unit of output will remain the same regardless of plant size. Therefore, the capacity output of the larger plant has the same average cost.

If a Firm Builds a Larger Plant and Constant Returns