Figure 13-9
The figure below depicts average total cost functions for a firm that produces automobiles.
-Refer to Figure 13-9. The firm experiences constant returns to scale at which output levels?
A)output levels less than M
B)output levels between M and N
C)output levels greater than N
D)All of the above are correct as long as the firm is operating in the long run.

Question

Figure 13-9
The figure below depicts average total cost functions for a firm that produces automobiles. 
-Refer to Figure 13-9. The firm experiences constant returns to scale at which output levels?
A)output levels less than M 
B)output levels between M and N 
C)output levels greater than N 
D)All of the above are correct as long as the firm is operating in the long run.

Quizplus · Accepted Answer

Constant returns to scale means that increasing all inputs by the same proportion will result in the same proportionate increase in output. In the figure, the slope of the ATC curve is constant between output levels M and N, indicating that increasing output in this range results in a proportional increase in costs, and thus constant returns to scale. Therefore, the correct answer is B, output levels between M and N.

Figure 13-9 the Figure Below Depicts Average Total Cost Functions for a for a Firm