Under what conditions will a competitive firm continue to grow in size?
A)Until diminishing returns set in.
B)Until it is just able to cover its variable costs.
C)As long as other firms do.
D)Until it achieves minimum efficient scale.
E)Until it makes an economic profit.

Question

Quizplus · Accepted Answer

A competitive firm will continue to grow in size until it achieves minimum efficient scale, which is the level of output at which the firm can produce at the lowest average cost possible in the long run. Beyond this point, the firm may experience diseconomies of scale and may no longer be able to reduce its average costs by increasing its size. Therefore, D is the best choice.

Under What Conditions Will a Competitive Firm Continue to Grow