A firm decreases its scale of operation and discovers that its long-run average costs decrease.Which of the following does this indicate?
A) Labor's marginal product has increased.
B) Diseconomies of scale were absent in the larger plant.
C) The firm's scale initially was so large that it experienced diseconomies of scale.
D) The firm's scale initially was too small to experience economies of scale.
E) Its long-run marginal cost was smaller with the larger plant than with the smaller plant.

Question

Quizplus · Accepted Answer

If a firm initially experiences diseconomies of scale, then decreasing the scale of operation may allow it to operate at a more efficient level, leading to lower long-run average costs.

A Firm Decreases Its Scale of Operation and Discovers That