Increasing returns to scale for a firm is shown graphically by
A) a horizontal long- run average cost curve.
B) a downward- sloping long- run average cost curve.
C) an upward- sloping long- run average cost curve.
D) a vertical long- run average cost curve.
E) none of the above; returns to scale have nothing to do with the shape of the long- run average cost curve.

Question

Quizplus · Accepted Answer

Increasing returns to scale are associated with a downward-sloping long-run average cost curve. As a firm increases its scale of production and expands its output, it benefits from lower costs per unit of production due to economies of scale. This leads to a downward-sloping long-run average cost curve.

Increasing Returns to Scale for a Firm Is Shown Graphically