Decreasing returns to scale imply:
A)decreasing long run average cost and increasing short-run average cost.
B)increasing long run average cost.
C)constant long run average cost.
D)increasing long run average cost and decreasing short run average cost.

Question

Quizplus · Accepted Answer

Decreasing returns to scale occur when an increase in inputs results in a proportionately smaller increase in output. This leads to an increase in long run average cost as the firm has to increase its inputs to produce the same output. Therefore, choice B is the correct answer.

Decreasing Returns to Scale Imply