If there are no fixed costs in the long run, how can it be said that economies of scale arise from spreading fixed costs over more units of output?
A)Economies of scale is a short run phenomenon, and so diminishing returns is the root cause of scale economies.
B)It is the cost of quasi-fixed inputs that gets spread over more units of output and drives down average cost in the long run.
C)Average fixed costs decline continuously as output rises.
D)Long-run average cost falls because all fixed costs are sunk.

Question

If there are no fixed costs in the long run, how can it be said that economies of scale arise from spreading fixed costs over more units of output? 
A)Economies of scale is a short run phenomenon, and so diminishing returns is the root cause of scale economies.
B)It is the cost of quasi-fixed inputs that gets spread over more units of output and drives down average cost in the long run.
C)Average fixed costs decline continuously as output rises.
D)Long-run average cost falls because all fixed costs are sunk.

Quizplus · Accepted Answer

Economies of scale in the long run arise from spreading the cost of quasi-fixed inputs (such as machinery or buildings) over more units of output, not from spreading fixed costs (such as rent or insurance) which remain constant regardless of output level. Average fixed costs may decline initially with higher output, but will eventually become negligible.

If There Are No Fixed Costs in the Long Run