ECONOMICS
PROFIT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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total cost is increasing
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marginal cost is increasing
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average fixed cost is decreasing
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marginal product of labor is decreasing
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Detailed explanation-1: -The correct answer is D) Economies of Scale. If a firm’s average total costs decrease as it increases its scale of production, the firm is experiencing is economies of scale. Economies of scale mean as the firm increases its production of goods and services, the average total cost of the firms will decrease.
Detailed explanation-2: -The difference between total cost and total variable cost remains constant as output is increased.
Detailed explanation-3: -If a firm’s long-run average costs increase at higher levels of output, then the firm becomes less efficient at producing the good as it produces more of it. The firm experiences diseconomies of scale. If a firm experiences lower long-run average costs as it increases output, then the firm exhibits economies of scale.
Detailed explanation-4: -When a firm increases output, total costs will rise because of a change in variable costs. Total cost of production is the sum of fixed costs and variable costs. Fixed costs do not change regardless of quantity of output. In contrast, variable costs increase with output.