Question

Which of the following illustrates economies of scale​, diseconomies of scale​, and constant returns to scale​? ​

A. Liza's average total cost changes from​ $4.50 to​ $2.20 when she increases salad production from 7 to 9 an hour. ​
B. Sam's average total cost changes from​ $1.30 to​ $2.80 when he increases smoothie production from 5 to 8 gallons an hour. ​
C. Tina's average total cost remains at​ $3 when she increases pizza production from 12 to 13 an hour.

Answer 1

A illustrates economies of scale with decreasing costs as production increases, B illustrates diseconomies of scale with increasing costs as production goes up, and C represents constant returns to scale with unchanged costs despite higher output.

Step-by-step explanation:

To identify which of the provided options illustrates economies of scale, diseconomies of scale, and constant returns to scale, we need to analyze how average total cost changes as production increases.

• A: Liza's average total cost decreasing from $4.50 to $2.20 when salad production increases from 7 to 9 an hour illustrates economies of scale, as her average costs decrease with increased production.
• B: Sam's average total cost increasing from $1.30 to $2.80 when smoothie production increases from 5 to 8 gallons an hour illustrates diseconomies of scale, as his average costs increase with more production.
• C: Tina's average total cost remaining at $3 when she increases pizza production from 12 to 13 an hour illustrates constant returns to scale, as the average cost does not change with the increase in output.