Suppose a firm experiences decreasing returns to scale.This is shown graphically by
A)a downward-sloping long-run average cost curve.
B)an upward-sloping long-run average cost curve.
C)a downward-sloping long-run marginal-cost curve.
D)a horizontal long-run average cost curve.
E)an increasing marginal product curve.

Question

Quizplus · Accepted Answer

Decreasing returns to scale occur when a firm's output increases less than proportionally to its inputs. This leads to an increase in long-run average cost as the firm expands production. The upward-sloping long-run average cost curve represents this relationship graphically.

Suppose a Firm Experiences Decreasing Returns to Scale