Constant returns to scale occur when the firm's long-run
A)total costs are constant as output increases.
B)average total costs are constant as output increases.
C)average cost curve is falling as output increases.
D)average cost curve is rising as output increases.

Question

Quizplus · Accepted Answer

Constant returns to scale means that as a firm increases its scale of production (i.e. output), it can do so in such a way that its average total costs remain constant. This implies that the firm is experiencing neither economies nor diseconomies of scale. Therefore, the correct answer is B, as it states that the average total costs are constant as output increases.

Constant Returns to Scale Occur When the Firm's Long-Run