Question

Indicate whether you agree or disagree with the following statements. Briefly explain your answers.

A) Increasing returns to scale refers to a situation where an increase in a​ firm's scale of production leads to higher costs per unit produced.
B) Constant returns to scale refers to a situation where an increase ina firm's scale of production has no effect on costs per units produced.
C) Decreasing returns to scale refers to a situation where an increase ina firm's scale of production leads to lower costs per unit produced.

Answer 1

Answer: Incorrect; Correct; Incorrect

Step-by-step explanation:

A. This is incorrect. Increasing returns to scale refers to the situation whereby the long-run average cost curve of a firm slopes downward and this leads to an increase in the​ scale of production of the firm and this also leads to lower average costs.

B. This is correct. The constant returns to scale refers is a situation whereby an increase in the firm's scale of production will have no impact on the costs per unit produced.

C. This is incorrect. Decreasing returns to scale is a situation that occurs when the long-run average cost curve of a firm slopes upward and this results into a situation whereby an increase in the​ scale of production of the firm will lead to higher average costs.