Suppose that a firm's long-run average total costs of producing an individual income tax return is $75 when it produces 1,000 returns and $75 when it produces 1,200 returns. For this range of output, the firm is experiencing
A)economies of scale.
B)constant returns to scale.
C)diseconomies of scale.
D)specialization.

Question

Quizplus · Accepted Answer

The fact that the long-run average total costs remain constant despite a 20% increase in output indicates that the firm is experiencing constant returns to scale. If the costs had decreased, it would indicate economies of scale, and if they had increased, it would indicate diseconomies of scale. Specialization is not a relevant factor in this scenario.

Suppose That a Firm's Long-Run Average Total Costs of Producing