If a firm decreases its plant size and finds that its long-run average costs have decreased, then
A)its labor is more productive in a smaller plant.
B)its diseconomies of scale are less.
C)the firm should reduce its plant size even more.
D)the firm is now profitable.

Question

Quizplus · Accepted Answer

If a firm decreases its plant size and finds that its long-run average costs have decreased, it means that the firm was experiencing diseconomies of scale at its previous plant size. By decreasing the plant size, the firm has been able to reduce the inefficiencies that were leading to higher costs. Therefore, the answer is B as the firm's diseconomies of scale are less. Choices A, C, and D are incorrect as they are not supported by the given information.

If a Firm Decreases Its Plant Size and Finds That