In industrial economics, what phenomenon occurs when long-run average total cost decreases as a firm doubles its scale of plant and all inputs?
Answer and explanation
Correct answer: A. Economies of scale
- Step 1: Economies of scale occur when increasing all production inputs proportionally leads to a more than proportional increase in output, reducing long-run average cost. Answer: Economies of scale. Why not the others: Diseconomies of scale increase average cost, constant returns leave average cost unchanged, and diminishing marginal returns apply in the short run with fixed factors.
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