Question

A B Long Run AC Long-Run AC Long-Run AC $ per Unit تست است Quantity of Output Quantity of Output Quantity of Output Refer to the three figures above. Which figure, if any, shows a firm with a long run average cost curve that has an extended period of constant returns to scale? None of the graphs Figure A Figure B Figure C

Answer 1

Increasing returns to scale occur when output increases by larger amounts than the increase in inputs in production. In this, the long-run average costs (LAC) curve is declining with increase in output. Constant returns to scale occure when the output increases in the same proportion as increase in inputs in production. In this, the LAC curve is constant with increase in output. Decreasing returns to scale occur when output increase by less amount than the increase in inputs in production. In this, the LAC curve is increasing with increase in output.

In figure A, there is an extended increasing returns to scale as LAC curve is declining mostly. In figure B, most of the LAC curve is constant so the firm experience extended constant returns to scale. In figure C, most of the LAC curve is increasing, thus it extended decreasing returns to scale.

Thus, the answer is Figure B.