Question

Suppose a firm is producing in the long run. When it produces 2,000 units of output, its total cost is $4,000. When it produces 2,300 units of output, its total cost is $4,100, and when it produces 2,600 units of output, its total cost is $4,200.

This firm is experiencing (constant, decreasing, increasing, increasing then decreasing, decreasing then increasing) returns to scale.?

Answer 1

This firm is experiencing Decreasing return to scale

Step-by-step explanation:

ATC = TC/Q

ATC (2,000) = $4,000/2000 unit = 2

ATC (2,300) = $4,100/2,300 unit = 1.78

ATC (2,600) = $4,200/2600 unit = 1.62

The ATC is decreasing, hence it is decreasing return to scale.