When an increase in the firm's output reduces its long-run average cost, it experiences:
A) economies of scale.
B) diseconomies of scale.
C) constant returns to scale.
D) variable returns to scale.

Question

Quizplus · Accepted Answer

When an increase in output leads to a decrease in long-run average cost, the firm is experiencing economies of scale. This means that as the firm grows, it becomes more efficient and cost-effective in producing goods or services. The firm can benefit from economies of scale by producing more output and spreading fixed costs over a larger output, achieving lower costs per unit of output.

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