If increasing returns to scale are present,the long-run average cost increases as more output is produced.

Question

Quizplus · Accepted Answer

Increasing returns to scale imply that with a doubling of inputs,output more than doubles.Since average cost is the ratio of total cost divided by output,this increase in inputs will cause the numerator to be just double the old value while the new denominator is more than double the old value.As a result,long-run average cost falls as more output is produced.

If Increasing Returns to Scale Are Present,the Long-Run Average Cost