Question

When the cost elasticity (= %change in LTC/%change in Q) is greater than 1, which of the following is present?

Answers:	a) Increasing returns to scale
	b) Decreasing returns to scale
	c) Law of diminishing returns
	d) Economies of scope

When the firm is at break-even where economic profit equals zero,

Answers:	a) its total revenue recovers explicit costs only.
	b) its total revenue recovers implicit costs only.
	c) it exactly realizes normal profit.
	d) its total revenue recovers sunk costs.

Answer 1

Q1
Answer
Option b
b) Decreasing returns to scale
the changing elasticity is greater than 1 means the change in LTC is more than the change in quantity in percentage term which means the cost is increasing at an increasing rate which can be written as the return is increasing as decreasing rate which we call decreasing return to scale.
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Q2
Answer
Option c
  
c) it exactly realizes normal profit.
Economic profit is zero means the firm is making a normal profit where it covers implicit and explicit costs and not economic profit.