When a firm with constant returns to scale uses 30% more of all inputs and input prices remain unchanged,then
A) total cost rises by less than 30%.
B) average cost falls by 30%.
C) total cost rises by more than 30%.
D) average cost remains unchanged.
E) average cost rises by 30%.

Question

Quizplus · Accepted Answer

Since the firm has constant returns to scale, increasing all inputs by 30% will result in a proportional increase in output. Thus, the firm's total cost will also increase by 30%. However, since the firm is producing more output, the average cost (total cost per unit of output) remains unchanged.

When a Firm with Constant Returns to Scale Uses 30