Suppose that a firm,operating efficiently,doubles the size of its operations and discovers that,as a result,its average cost of production has increased.What does this imply?
A)Decreasing returns to scale are present.
B)Increasing returns to scale are present.
C)Constant returns to scale are present.
D)No conclusion about returns to scale can be made.

Question

Quizplus · Accepted Answer

When a firm operating efficiently doubles its size of operations and experiences an increase in average cost of production, it implies that decreasing returns to scale are present. This means that the firm's increase in production is not resulting in the same proportional increase in output, leading to a higher cost per unit of production.

Suppose That a Firm,operating Efficiently,doubles the Size of Its Operations