If an industry's long-run average total cost curve has an extended range of constant returns to scale, this implies that: A

Economics Dec 07, 2020

If an industry's long-run average total cost curve has an extended range of constant returns to scale, this implies that:

A. technology precludes both economies and diseconomies of scale,

B. the industry will be a natural monopoly,

C. both relatively small and relatively large firms can be viable in the industry,

D. the industry will be comprised of a very large number of small firms.

Expert Solution

Option C. both relatively small and relatively large firms can be viable in the industry is correct.

This option is correct because, in the case of constant returns to scale, the output is produced by the same amount as input imposed in the process of production. It means the same level of efficiency is achieved in an economy. So, it allows both large and small firms to continue production in the industry through their operations.

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