The LAC and LMC curves in the diagram below are consistent with a production function that exhibits
A)decreasing returns to scale.
B)constant returns to scale.
C)increasing returns to scale.
D)increasing returns to scale for small levels of output,then constant returns to scale,and eventually decreasing returns to scale as output increases.
E)decreasing returns to scale for small levels of output,then constant returns to scale,and eventually increasing returns to scale as output increases.

Question

The LAC and LMC curves in the diagram below are consistent with a production function that exhibits 
A)decreasing returns to scale. 
B)constant returns to scale. 
C)increasing returns to scale. 
D)increasing returns to scale for small levels of output,then constant returns to scale,and eventually decreasing returns to scale as output increases. 
E)decreasing returns to scale for small levels of output,then constant returns to scale,and eventually increasing returns to scale as output increases.

Quizplus · Accepted Answer

The LAC curve is U-shaped, indicating decreasing returns to scale at low levels of output, constant returns to scale in the middle, and eventually increasing returns to scale as output increases. The LMC curve intersects the LAC curve at the minimum point, indicating that the firm is operating at its optimal level of output where it minimizes its average cost of production. This is consistent with a production function that exhibits increasing returns to scale for small levels of output, then constant returns to scale, and eventually decreasing returns to scale as output increases.

The LAC and LMC Curves in the Diagram Below Are