You would expect that your firm is experiencing increasing returns to scale if
A)Long run average costs increase with output
B)Long run average costs decrease with output
C)Long run average costs are constant with respect to output
D)None of the above

Question

​You would expect that your firm is experiencing increasing returns to scale if
A)​Long run average costs increase with output
B)Long run average costs decrease with output
C)Long run average costs are constant with respect to output
D)​None of the above

Quizplus · Accepted Answer

Increasing returns to scale occur when long run average costs decrease with output. This means that as the firm increases its production, it becomes more efficient and is able to produce goods at a lower average cost. If long run average costs were increasing with output (choice A), this would suggest that the firm is experiencing diseconomies of scale, where it becomes less efficient as it grows. If long run average costs were constant with respect to output (choice C), this would suggest that the firm is experiencing constant returns to scale, where the average cost per unit of output remains the same regardless of the firm's size. None of the above (choice D) is not the correct answer as there is a correct answer to this question.

​You Would Expect That Your Firm Is Experiencing Increasing Returns

You Would Expect That Your Firm Is Experiencing Increasing Returns