Suppose McDonald's puts up five new stores in San Francisco using exactly the same floor plan, capital equipment and number of workers, then the long run average cost curve of McDonald's would be ________ and the company experiences ________.
A) horizontal; constant returns to scale
B) horizontal; economies of scale
C) upward sloping; economies of scale
D) horizontal; diseconomies of scale

Question

Quizplus · Accepted Answer

When five new stores are opened with the same floor plan, equipment, and workers, the long run average cost curve of McDonald's would be horizontal, indicating constant returns to scale. This means that the cost per unit of output remains the same as the company expands horizontally.

Suppose McDonald's Puts Up Five New Stores in San Francisco