A firm's short - run average cost curve is U - shaped. Which of these conclusions can be reached regarding the firm's returns to scale? The firm experiences increasing, constant, and decreasing returns in that order. The short-run average cost curve reveals nothing regarding returns to scale. The firm experiences first decreasing, then increasing returns to scale. The firm experiences increasing returns to scale.

Question

Mylie Tyler

Business

12 June, 08:56

A firm's short - run average cost curve is U - shaped. Which of these conclusions can be reached regarding the firm's returns to scale? The firm experiences increasing, constant, and decreasing returns in that order. The short-run average cost curve reveals nothing regarding returns to scale. The firm experiences first decreasing, then increasing returns to scale. The firm experiences increasing returns to scale.

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Answers (1)

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Sawyer Walters · Answer 1

The correct answer is option B.

Explanation:

The shape of the average cost curve does not represents anything about the returns to scale. The shape of the average cost curve is U because in the short run there are some fixed and variable costs involved.

The fixed cost remains constant throughout the production process. The total variable cost increases with the increase in output.

The fixed cost per unit will keep on declining while the variable cost per unit will be constant.

Because of the law of variable proportions the curve will be U shaped.