If the generic production function Q = f (K,L)displays increasing returns to scale,the value of K is fixed in the short run,and the prices of all inputs are held constant,then
A)the short-run average cost curve must be strictly decreasing.
B)the long-run average cost curve must be strictly decreasing.
C)the short-run and the long-run average cost curves will coincide.
D)the long-run average cost curve must be strictly increasing.

Question

Quizplus · Accepted Answer

With increasing returns to scale, a proportional increase in inputs results in a larger percentage increase in output. Therefore, as the firm expands its scale of production in the long run (by adjusting both K and L), the average cost of production will decrease. Thus, the long-run average cost curve must be strictly decreasing.

If the Generic Production Function Q = F (K,L)displays Increasing