A cost function has economies of scale if
A)average fixed costs fall as production increases.
B)total costs fall as production increases.
C)the average total cost falls as production increases.
D)it is less expensive to produce goods jointly rather than separately.

Question

Quizplus · Accepted Answer

Economies of scale refer to a situation where a firm can produce at a lower cost per unit as it increases the scale of production. The key is that the average total cost (ATC) falls as production increases. This means that the firm is able to spread its fixed costs over a larger number of units, resulting in a lower per-unit cost. Option A refers only to fixed costs, whereas option B refers to total costs, which may or may not be affected by scale. Option D refers to economies of scope, which is a separate concept from economies of scale.

A Cost Function Has Economies of Scale If