Question

When a firm’s long­run average total costs do not vary as output increases, the firm exhibits__...

When a firm’s long­run average total costs do not vary as output increases, the firm exhibits__

a. economies of scale.

b. constant returns to scale.

c. diseconomies of scale.

In the long run a company that produces and sells covers for cell phones incurs total costs of $2,500 when output is 1,250 covers and $4,000 when output is 1,500 covers. For this range of output, the cell phone cover company exhibits___

a. economies of scale.

b. constant returns to scale

c. diseconomies of scale.

  d. increasing returns to scale.

Business   Economics   
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Homework Answers

Answer #1

Answer : 1) The answer is option b.

For firm's constant returns to scale the firm's long-run average total cost does not vary when output increase. Hence except option b other options are not correct. Therefore, option b is the correct answer.

2) The answer is option c.

When output is 1250 then average total cost = Total cost / Output level = 2500 / 1250 = $2.

When output is 1500 then average total cost = 4000 / 1500 = $2.67 .

If firm's average total coat increase when output increase then the firm face a situation of decreasing returns to scale. This decreasing returns to scale is also known as diseconomies of scale. Hence except option c other options are not correct. Therefore, option c is the correct answer.

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