Which of the following statements is (are) TRUE?
I. If a firm has economies of scale, long-run average total cost rises with increases in output.
II. Diseconomies of scale are associated with the portion of the long-run average total cost curve that slopes upward.
III. For the long-run average total cost curve to slope downward, the total cost of production must increase less than proportionately with output.
IV. A firm may have economies of scale despite a production function with constant returns to scale.
A) I, II, and III
B) II, III, and IV
C) II and III
D) I

Question

Quizplus · Accepted Answer

Statement II is true because diseconomies of scale occur when long-run average total cost increases with output. Statement III is true because for the long-run average total cost curve to slope downward, costs must increase less than proportionately with output, indicating economies of scale. Statement IV is true because economies of scale can occur due to factors other than the production function, such as bulk purchasing or managerial efficiencies.

Which of the Following Statements Is (Are) TRUE