Answer each of the following as true or false and explain your answers briefly.

Question

Answer each of the following as true or false and explain your answers briefly. No credit will be given for just a true/false answer if no explanation is provided.

A. If a firm has constant returns to scale in the long run, the total cost of producing its product does not change when it expands or contracts its output.

B. Minimum efficient scale occurs at the largest level of output at which a firm can minimize its long-run average costs.

C. If a firm increases all its inputs by 20% and its output increases by 30%, the firm is experiencing economies of scale.

D. One explanation why the long-run average cost curve of a firm rises after some level of output has been reached is the law of diminishing returns.

E. The production functions Q = 2L0.35K0.70 and Q = 20L + 16K + 10LK both exhibit increasing returns to scale.

Explanation / Answer

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