A long-run cost function for a product exhibits economies of scale if
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1 mark, −0.333MicroeconomicsCosts of productionLong-run cost, economies and diseconomies of scaleEasyabout 1 min
IIT JAM 2022 Question 10: Costs of production
Answer and worked solution
Answer: (C)
Economies of scale exist when long-run average cost declines as output expands.
The answer is (C). Rising average cost (A) is diseconomies of scale, and constant average cost (D) is constant returns.
The trap: (A) average cost of production increases when the output increases.
Option (A) describes diseconomies of scale, the mirror image; the defining feature of economies of scale is falling average cost.
Costs of production has come up 83 times in 7 exams since 2006.
What this question tests
This question is on Long-run cost, economies and diseconomies of scale, part of Costs of production in Microeconomics.
The long-run average cost curve as an envelope, its U-shape and the minimum efficient scale.
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Question from the IIT JAM 2022 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.