Increasing returns to scale for a firm is shown graphically by
A)a downward-sloping long-run average cost curve.
B)an upward-sloping long-run average cost curve.
C)a horizontal long-run average cost curve.
D)a vertical long-run average cost curve.
E)None of the above; returns to scale have nothing to do with the shape of the long-run average cost curve.

Question

Quizplus · Accepted Answer

When a firm experiences increasing returns to scale, it means that as it increases its inputs, its output increases at a faster rate, causing its average cost to decrease. This leads to a downward-sloping long-run average cost curve, as the firm is able to produce at a lower cost per unit as it produces more.

Increasing Returns to Scale for a Firm Is Shown Graphically