In the long run a company that produces and sells covers for cell phones incurs total costs of $2,500 when output is 1,250 covers and $4,000 when output is 1,500 covers. For this range of output, the cell phone cover company exhibits
A)economies of scale.
B)constant returns to scale.
C)diseconomies of scale.
D)efficient scale.

Question

Quizplus · Accepted Answer

The total costs increased from $2,500 to $4,000 as output increased from 1,250 to 1,500 covers, indicating that the average cost of producing each additional cover increased. This suggests that the company is experiencing diseconomies of scale, where increasing production is leading to higher average costs rather than lower average costs.

In the Long Run a Company That Produces and Sells