Over the last 5 years, Kansas Whiskey has increased their production from 4,000 units per year...

Over the last 5 years, Kansas Whiskey has increased their production from 4,000 units per year to 6,000 units per year. Over that same time period its costs per unit (long-run ATC) has decreased from $8.50 per unit to $6 per unit. This means that Kansas Whiskey is experiencing

a. Economies of Scale

b. Constant Returns to Scale

c. Diseconomies of Scale

Solutions

Expert Solution

Correct Answer:

Explanation:

It is the economies of scale that is taking place. It is due to the reason that, with increase in output level in the long run, average cost (LRATC) of output has decreased from $8.5 to $6. It happens under the economies of scale phenomenon.

So, correct answer is alternative A.

Rahul Sunny answered 1 year ago

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