You would expect that your firm is experiencing a constant returns to scale if
A)Long run average costs increase with output
B)Long run average costs decrease with output
C)Long run average costs are constant with respect to output
D)None of the above

Question

​You would expect that your firm is experiencing a constant returns to scale if
A)​Long run average costs increase with output
B)Long run average costs decrease with output
C)Long run average costs are constant with respect to output
D)​None of the above

Quizplus · Accepted Answer

Constant returns to scale means that the long run average costs remain constant even as output increases. Option A is incorrect because increasing long run average costs with output signifies decreasing returns to scale (i.e. the output increases at a slower rate than the increase in input leading to higher costs per unit of output). Option B is incorrect because decreasing long run average costs with output signifies increasing returns to scale (i.e. larger output can be produced at lower cost per unit as the scale of production increases). Option D is incorrect since only option C accurately represents the definition of constant returns to scale.

​You Would Expect That Your Firm Is Experiencing a Constant

You Would Expect That Your Firm Is Experiencing a Constant