In the long run Willie's Chocolate Factory incurs total costs of $2,500 when output is 1,250 units and $2,750 when output is 1,500 units.For this range of output,Willie's exhibits
A) economies of scale.
B) constant returns to scale.
C) diseconomies of scale.
D) efficient scale.

Question

Quizplus · Accepted Answer

Economies of scale occur when the average cost per unit decreases as output increases. Here, the average cost decreases from $2 per unit ($2,500/1,250) to $1.83 per unit ($2,750/1,500), indicating economies of scale.

In the Long Run Willie's Chocolate Factory Incurs Total Costs