True or False Decreasing long-run average costs for a firm as it expands plant size and...

True or False

Decreasing long-run average costs for a firm as it expands plant size and output result from increasing returns to scale

Expert Solution

Answer: True

Decreasing long-run average costs for a firm as it expands plant size and output result from increasing returns to scale. -True

In the long-run production, all inputs are variable. Over the time in long-run, when the plant size increases, the employment of variable inputs, and the quantity of output also increase with the size of the plant.The increasing returns to scale means, the proportionate increase in output is greater than the proportionate increase in inputs. Now over the long-run, as the firm gets more efficient in production, the average cost of production gradually decreases.Also the efficiency in production causes a greater proportionate change in output than the proportionate change in inputs. The increase of plant size, and the efficiency of production decreases the firm's marginal cost of production. So over the long run, the firm experiences increasing returns to scale and thus the economies of scale, i.e., decreasing long-run average cost of production with the rise in output or change in plant size..

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Rahul Sunny answered 6 hours ago

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