Question

If your firm is operating in the negatively sloped portion of a long-run average total cost curve, then your production exhibits: A) increasing returns to scale. B) higher wages. C) decreasing returns to scale. D) increased input prices.

Answer 1

Answer: C. Decreasing returns to scale

Explanation: Economic of scale refer to a situation where as the level of output increases, the average cost will decrease. In the case of constant return to scale here the average cost will not change as the output increases.

In this question the firm is operating in the negative sloped portion of the long-run average total cost curve, which shows that it has a "Decreasing returns to scale " .