When the firm increases output and the costs rise proportionately, then the long-run average cost curve is ________ and the firm is experiencing ________.
A) horizontal; constant returns to scale
B) downward sloping; constant returns to scale
C) upward sloping; diseconomies of scale
D) downward sloping; economies of scale

Question

Quizplus · Accepted Answer

When costs rise proportionately with output, it indicates that the firm's long-run average cost remains constant as output increases, which is characteristic of constant returns to scale. This scenario is represented by a horizontal long-run average cost curve.

When the Firm Increases Output and the Costs Rise Proportionately