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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.

1 Answer

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Final answer:

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.

User Stefano Mtangoo
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