If General Electric (an American company) finds that when it doubles both its plant size...
If General Electric (an American company) finds
that when it doubles both its plant size and the amount of
associated inputs, its output level more than doubles, then
A. the firm is experiencing economies of scale
B. long-run average costs must be increasing
C. the law of diminishing returns is in effect
D. the firm is experiencing constant returns to scale
E. the firm should increase production
Homework Answers
Answer : The answer is option A.
For increasing returns to scale the output increase more than double if input increase by double. Here output increases more than double when input and plant size are increased by double. This means that the firm is facing a situation of increasing returns to scale. Increasing returns to scale is also known as economies of scale. Hence except option A other options are not correct. Therefore, option A is the correct answer.
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