Question

If a firm builds a larger plant and long-run average total cost does not change, the firm has constant returns to scale.

a) True.
b) False.

Answer 1

If a firm builds a larger plant and long-run average total cost does not change, it indicates constant returns to scale.

Step-by-step explanation:

If a firm builds a larger plant and long-run average total cost does not change, it indicates constant returns to scale.

Constant returns to scale occur when a firm increases its output or production scale while keeping the same proportion of inputs, resulting in no change in long-run average total cost.

Therefore, the statement 'If a firm builds a larger plant and long-run average total cost does not change, the firm has constant returns to scale' is True.