Question

Suppose a firm doubles its output
in the long run. At the same time the
average cost of production remains
unchanged. We can conclude that the
firm is
Answer
A.
Exploiting the economies of
scale available to it.
B. Facing constant returns to scale
c. Facing diseconomies of scale
D. Not using the available
technology efficiently​

Answer 1

There are three types of returns to scale which are differentiated by their returns to output given a doubling of all inputs. To have constant returns of scale, the doubling of all inputs doubles output which means that total cost doubled. Since total cost doubled and output doubled, average cost has not changed. Thus, when constant returns to scale exist, average cost remains constant.