Use the following two statements to answer this question: I. A growing firm's average cost of production will decline over time if output continually expands and economies of scale are present.
II) A firm's average cost of production can decline over time if learning occurs as cumulative output increases.
A) Both I and II are true.
B) I is true, and II is false.
C) I is false, and II is true.
D) Both I and II are false.

Question

Quizplus · Accepted Answer

Both statements are true. Statement I refers to economies of scale, which occur when a firm's average cost of production decreases as output increases. Statement II refers to learning curve effects, which occur when a firm's average cost of production decreases as cumulative output increases due to the learning and improvement that occurs over time.

Use the Following Two Statements to Answer This Question: I