What is an example of the scale effect?
A)Workers choose to provide more hours of labor when the wage rate decreases.
B)Hiring more labor as long as the marginal product of labor is positive.
C)The firm expands output when production costs fall.
D)The firm expands output when production costs increase.
E)The firm hires more labor when the wage falls because labor has become relatively cheaper compared to the price of other factors of production.

Question

Quizplus · Accepted Answer

The scale effect occurs when a firm expands its output because production costs have fallen. This can be seen as the firm is able to produce more goods at a lower cost per unit, which increases its profits. This is a long-term effect that can result from a variety of factors such as technological advancements, increased specialization, or economies of scale.

What Is an Example of the Scale Effect