Engineers for The All-Terrain Bike Company determine that a 10% increase in all inputs will cause an equal percentage increase in output. Assuming that input prices remain constant, you correctly deduce that such a change in inputs will cause ________ as output increases.
A) average costs to increase
B) average costs to decrease
C) average costs to remain constant
D) marginal costs to increase

Question

Quizplus · Accepted Answer

Given that a 10% increase in all inputs leads to an equal percentage increase in output, this implies constant returns to scale. Under constant returns to scale, average costs remain constant as output increases, assuming input prices do not change.

Engineers for the All-Terrain Bike Company Determine That a 10