In the long run a company that produces and sells organic tofu incurs total costs of $1,200 when output is 1,200 units and $1,650 when output is 1,400 units. The tofu company exhibits
A)diseconomies of scale because total cost is rising as output rises.
B)diseconomies of scale because average total cost is rising as output rises.
C)economies of scale because total cost is rising as output rises.
D)economies of scale because average total cost is falling as output rises.

Question

Quizplus · Accepted Answer

The fact that total costs increase as output increases suggests that the company is experiencing some level of inefficiency, leading to diseconomies of scale. Furthermore, the fact that average total cost (ATC) is also increasing as output rises provides further evidence of diseconomies of scale. When a company is experiencing economies of scale, both total cost and ATC should be decreasing as output increases.

In the Long Run a Company That Produces and Sells