Question

Complete the sentence. A firm experiences constant returns to scale when ​ _______.

A. average total cost does not change when output changes

B. the LRAC curve is upward sloping

C. the plant the firm uses and the quantity of labor the firm hires remain constant

D. the LRAC curve is downward sloping

Answer 1

The correct answer is option A.

Step-by-step explanation:

The constant returns to scale refer to the situation when a proportionate change in the input causes an equal proportionate change in the output level.

In this situation, the average total cost which is the ratio of the total cost of production and quantity of output produced remains the same.

The average total cost curve is a horizontal line when the firm experiences constant returns to scale.