The construct of a representative firm is most helpful in describing the behavior of all of the firms in the economy when
A) there are constant returns to scale.
B) there are increasing returns to scale.
C) there are decreasing returns to scale.
D) the marginal product of labour is increasing in the amount of labour input.
E) the marginal product of labour is decreasing in the amount of labour input.

Question

Quizplus · Accepted Answer

When there are constant returns to scale, all firms in the economy are assumed to be identical in terms of the technology they use to produce goods and services. This means that each firm can be represented by a single representative firm that produces at the industry level. The behavior of the representative firm can then be used to describe the behavior of all firms in the economy.

The Construct of a Representative Firm Is Most Helpful in Describing