In the long run a company that produces and sells popcorn incurs total costs of $1,150 when output is 60 canisters and $1,100 when output is 90 canisters. The popcorn 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

Economies of scale occur when the average total cost of production decreases as the quantity of output increases. In this case, as output increases from 60 to 90 canisters, the total cost increases from $1,150 to $1,100, indicating that the cost per unit (average total cost) is decreasing, which is a characteristic of economies of scale.

In the Long Run a Company That Produces and Sells