A firm doubled all its inputs and experienced a 50% increase in output. If all input prices remain unchanged, 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 a firm increases its inputs and experiences a less than proportional increase in output, it is facing diseconomies of scale. In this case, the firm doubled its inputs and only experienced a 50% increase in output, indicating that average costs have increased. Therefore, the long-run average cost exhibits diseconomies of scale at the current output level.

A Firm Doubled All Its Inputs and Experienced a 50