Indicate whether you agree or disagree with the following statements. Briefly explain your answers.

A) Increasing returns to scale refers to a situation where an increase in a firm's scale of production leads to higher costs per unit produced.

B) Constant returns to scale refers to a situation where an increase ina firm's scale of production has no effect on costs per units produced.

C) Decreasing returns to scale refers to a situation where an increase ina firm's scale of production leads to lower costs per unit produced.

Question

Business

Quinten

22 June, 15:28

Indicate whether you agree or disagree with the following statements. Briefly explain your answers.

A) Increasing returns to scale refers to a situation where an increase in a firm's scale of production leads to higher costs per unit produced.

B) Constant returns to scale refers to a situation where an increase ina firm's scale of production has no effect on costs per units produced.

C) Decreasing returns to scale refers to a situation where an increase ina firm's scale of production leads to lower costs per unit produced.

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Answers (1)

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Carsen Griffith · Answer 1

Answer: Incorrect; Correct; Incorrect

Explanation:

A. This is incorrect. Increasing returns to scale refers to the situation whereby the long-run average cost curve of a firm slopes downward and this leads to an increase in the scale of production of the firm and this also leads to lower average costs.

B. This is correct. The constant returns to scale refers is a situation whereby an increase in the firm's scale of production will have no impact on the costs per unit produced.

C. This is incorrect. Decreasing returns to scale is a situation that occurs when the long-run average cost curve of a firm slopes upward and this results into a situation whereby an increase in the scale of production of the firm will lead to higher average costs.