The figure given below shows three Short Run Average Total Cost (SRATC) curves and the Long Run Average Total Cost (LRATC) curve of a firm.Figure 8.3

-If long-run costs are plotted on the vertical axis and quantity of output plotted on the horizontal axis, a positively sloped line implies _____.
A)constant returns to scale
B)economies of scale
C)diseconomies of scale
D)an increase in capital-labor ratio
E)a decrease in cost-output ratio

Question

The figure given below shows three Short Run Average Total Cost (SRATC) curves and the Long Run Average Total Cost (LRATC) curve of a firm.Figure 8.3
 
-If long-run costs are plotted on the vertical axis and quantity of output plotted on the horizontal axis, a positively sloped line implies _____.
A)constant returns to scale 
B)economies of scale 
C)diseconomies of scale 
D)an increase in capital-labor ratio 
E)a decrease in cost-output ratio

Quizplus · Accepted Answer

A positively sloped line in a LRATC curve implies diseconomies of scale, which means that as the firm increases its output, the average total cost per unit of output increases. This happens when the firm faces increased costs of coordination and communication, and may also be due to the exhaustion of economies of scale.

The Figure Given Below Shows Three Short Run Average Total