Question

If the long-run average total cost curve for a firm is horizontal in a relevant range of production, then it indicates that there

Answer 1

If the long-run average total cost curve for a firm is horizontal in a relevant range of production, then it indicates that there (B) are constant returns to scale.

What is the long-run average total cost curve?

• The long-run average cost (LRAC) curve depicts the firm's lowest cost per unit at each output level, assuming that all production parameters are changeable.
• The LRAC curve presupposes that the firm has determined the best factor mix for creating any amount of production, as discussed in the previous section.
• To derive the long-run total cost function, we take the expansion path's total cost and quantity pairs.
• "When all factors of production are variable, the long-run total cost function displays the lowest total cost of generating each amount."
• If a firm's long-run average total cost curve is horizontal in a relevant production range, it shows that there are consistent returns to scale.

As the description states, if a firm's long-run average total cost curve is horizontal in a relevant production range, it shows that there are consistent returns to scale.

Therefore, if the long-run average total cost curve for a firm is horizontal in a relevant range of production, then it indicates that there (B) are constant returns to scale.

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Complete question:

If the long-run average total cost curve for a firm is horizontal in a relevant range of production, then it indicates that there

A. isn't a minimum efficiency scale.

B. are constant returns to scale.

C. are diseconomies of scale.

D. are economies of scale.