A firm scaled up its operation by increasing all inputs by 100%. If the firm experienced 150% increase in the output, the firm's long-run average cost exhibits
A) economies of scale at the current output level.
B) diseconomies of scale at the current output level.
C) a constant long-run average cost at the current output level.
D) diminishing marginal returns at the current output level.

Question

Quizplus · Accepted Answer

When all inputs are increased by 100% and the output increases by 150%, it indicates that the firm is experiencing economies of scale. This means that the firm is reducing its long-run average cost as it is increasing its output level. Therefore, choice A is the best answer.

A Firm Scaled Up Its Operation by Increasing All Inputs