Question

A firm experiences long-run economies of scale when

Select one:

a. long-run marginal costs are falling.

b. long-run average costs are falling.

c. long-run average costs are rising.

d. long-run marginal costs are rising

Answer 1

Answer -

Option (b) - Long run average cost are falling is the correct answer.

Explanation -

Economies of scale refers to reduction in cost of production due to increased level of output.

In the long run all factor inputs i.e fixed and variable all becomes variable factors.A firm will changing it's production technology adopting optimum utilisation of production resources and resulted in increase in the level of output. Increased production output ultimately decreases average cost. So the firm experience long run economies of scale when long run average costs are falling.