In the long run,if 1,000 units are produced at a cost of $8,000 and 1,200 units at a cost of $9,200,then over this range of output there are
A) constant economies of scale.
B) constant returns to scale.
C) diseconomies of scale.
D) economies of scale.
E) constant diseconomies of scale.

Question

Quizplus · Accepted Answer

Economies of scale occur when the cost per unit decreases as production output increases. In this case, as more units are produced (from 1,000 to 1,200), the cost increases by $1,200 ($9,200 - $8,000). However, the cost per unit decreases from $8 per unit to $7.67 per unit ($8,000/1,000 units vs. $9,200/1,200 units), indicating economies of scale. Therefore, the correct answer is D) economies of scale.

In the Long Run,if 1,000 Units Are Produced at a Cost