When a firm's production function exhibits constant returns to scale:
A) the short-run average cost curve will be horizontal.
B) the long-run average cost curve will be U-shaped.
C) the long-run marginal cost curve will be upward sloping.
D) the short-run average variable cost curve will be downward sloping.
E) the long-run average cost curve will be horizontal.

Question

Quizplus · Accepted Answer

When a firm's production function exhibits constant returns to scale, the long-run average cost curve will be horizontal. This is because as the firm increases its scale of production by increasing all inputs proportionally, the cost per unit of output remains constant. Therefore, the long-run average cost curve will be flat or horizontal.

When a Firm's Production Function Exhibits Constant Returns to Scale