Test 4-production function PT4

Question 1

economies of scale

Answer 1

the property whereby long-run ATC FALLS as the quantity of output increases.

(more efficient & specialized)

Question 2

constant returns to scale

Answer 2

the property whereby long-run ATC stays the same as the quantity of output changes.

(output increases exactly in the same proportion in which FOP are increased.)

Question 3

Diseconomies of scale

Answer 3

the property whereby long-run ATC rises as the quantity of output increases

(inefficient: it starts to cost more to produce an additional unit)