A firm's short-run average cost curve is U-shaped. Which of these conclusions can be reached regarding the firm's returns to scale?
A) The firm experiences increasing returns to scale.
B) The firm experiences increasing, constant, and decreasing returns in that order.
C) The firm experiences first decreasing, then increasing returns to scale.
D) The short-run average cost curve reveals nothing regarding returns to scale.

Question

Quizplus · Accepted Answer

The short-run average cost curve reflects the firm's cost behavior with one or more fixed inputs, not the returns to scale, which are related to changes in output resulting from proportionate changes in all inputs in the long run.

A Firm's Short-Run Average Cost Curve Is U-Shaped