Which of the following statements regarding the cost curves illustrates the situation when a firm experiences increasing returns to scale at all levels of output?
A) The slope of its production function is negative.
B) The slope of its long-run total cost curve is negative.
C) The slope of its short-run average cost curve is always negative.
D) The slope of its long-run average total cost curve is always negative.

Question

Quizplus · Accepted Answer

When a firm experiences increasing returns to scale at all levels of output, it means that the long-run average total cost curve slopes downward continuously, which is the case only in option D. Option A is incorrect because the slope of the production function is not relevant to determining returns to scale. Option B is incorrect because the slope of the long-run total cost curve is not necessarily negative in all cases of increasing returns to scale. Option C is incorrect because the short-run average cost curve can initially decrease and then increase again, indicating diseconomies of scale at higher levels of output, which does not match the situation described in the question.

Which of the Following Statements Regarding the Cost Curves Illustrates