A manufacturer of towels finds that his returns to scale are constant.Which of the following conclusions can be drawn?
A)The long-run total cost curve is horizontal.
B)The long-run average cost curve is horizontal.
C)The long-run total cost curve is downward sloping.
D)The long-run average cost curve is downward sloping.

Question

Quizplus · Accepted Answer

When returns to scale are constant, it means that increasing all inputs by a certain percentage results in an increase in output by the same percentage. This leads to a situation where the long-run average cost of production remains constant as output increases, hence the long-run average cost curve is horizontal.

A Manufacturer of Towels Finds That His Returns to Scale