When an increase in the firm's output reduces its long-run average total cost, it undergoes:
A)increasing returns to scale.
B)decreasing returns to scale.
C)constant returns to scale.
D)variable returns to scale.

Question

Quizplus · Accepted Answer

When an increase in output reduces the long-run average total cost, it is an indication of increasing returns to scale. This implies that as the firm expands its operations and increases its output, it is able to achieve greater economies of scale and reduce its average cost of production.

When an Increase in the Firm's Output Reduces Its Long-Run