Question

When all of a firm's inputs are doubled, input prices do not change, and this results in the firm's level of production more than doubling, a firm is operating:

Answer 1

Answer: (B) on the downward-sloping portion of its long-run average total cost curve.

Explanation:

The downward-sloping portion of a company's Long Run Average Total Cost(LRATC) curve is the part where increasing returns to scale is witnessed.

This is because the costs that are incurred by the company leads to higher proportional output thereby reducing the average cost and pulling the LRATC down.

In this scenario, the inputs doubled and the firm's level of production more than doubled which means that with outputs increasing more than costs, the Average cost is reducing and the slope is downward sloping.