Suppose that a firm,operating efficiently,doubles the size of its operations and discovers that,as a result,its average cost of production has fallen.What does this imply?
A)Decreasing returns to scale are present.
B)Increasing returns to scale are present.
C)Constant returns to scale are present.
D)No conclusion about returns to scale can be made.

Question

Quizplus · Accepted Answer

When the firm doubles its size of operations and the average cost of production falls, it indicates that the firm is experiencing increasing returns to scale. This means that increasing inputs like capital and labor are resulting in more than proportional outputs, leading to a decrease in the cost per unit of output.

Suppose That a Firm,operating Efficiently,doubles the Size of Its Operations