Question


Constant cost industry implies the existence of constant returns to scale.

Homework Answers

Answer #1

The statement is not correct

Constant returns to scale is a technology that results when inputs are increased in a given proportion and output is increased in the same proportion. This also suggest that the average total cost curve in the long run for a typical Firm in the industry has a u shape. This does not mean that the industry has a constant returns to scale. A constant cost industry has long run supply curve horizontal which implies that an increase or decrease in the demand will have no impact on the price level. However individually different firms that are operating in the industry can have constant returns as well as increasing or diminishing Returns.

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