Question

Suppose a firm doubles its output in the long run. At the same time the unit cost of production remains unchanged. We can conclude that the firm is

A. not using the available technology efficiently.
B. facing diseconomies of scale.
C. exploiting the economies of scale available to it.
D. facing constant returns to scale.

Answer 1

Option C is correct.

Exploiting the economies of scale available to it.

Step-by-step explanation:

In this case, the firm is able to double its output in the long run without increasing its Average Cost of Production. Thus, the increase in output is more than the increase in cost incurred by the firm.Thus, the firm is exploiting the economies of Scale.

Answer 2

Answer: D. facing constant returns to scale.

Explanation: We can conclude or assume that the firm is facing constant returns to scale. Constant returns to scale occurs when economies of scale (the decline in average costs as production expands) have been exhausted allowing all inputs to expand which translates to increased output does not change much the average cost of production. That is, the average cost of production does not change much as scale rises or falls.