Question

Suppose a firm is producing in the long run. When it produces 2,000 units of output, its total cost is $8,000. When it produces 2,100 units of output, its total cost is $8,600, and when it produces 2,200 units of output, its total cost is $9,200. This firm is experiencing returns to scale.

a. increasing then decreasing
b. decreasing then increasing
c. increasing
d. constant
e. decreasing

Answer 1

The firm is experiencing decreasing returns to scale.

Step-by-step explanation:

The firm is experiencing returns to scale. Returns to scale refer to the change in output that occurs when all inputs are increased in the same proportion. In this case, as the firm increases its production from 2,000 units to 2,100 units, the total cost increases from $8,000 to $8,600. This is an increase in cost, indicating that the firm is experiencing decreasing returns to scale.