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The table illustrates the long-run average cost values for the refrigerator industry
The table illustrates the long-run average cost values for the refrigerator industry. Use the table to answer the three corresponding questions.
| Quantity Produced | Long-Run Average Cost | |
| A | 10,000 | $1,200 |
| B | 20,000 | $900 |
| C | 30,000 | $700 |
| D | 40000 | $700 |
| E | 50,000 | $800 |
| F | 60,000 | $1,000 |
Which section of the firm's long run average cost curve demonstrate:
a. Economies of scale.
b. Constant return of scale.
c. Diseconomies of scale.
Expert Solution
In the case of economies of scale, the long-run average cost decreases with the increase in the output.
In the case of constant returns of scale, the long-run average cost remains the same with the increase in the output.
In the case of diseconomies of scale, the average cost is more than the increase in output.
In the above table, the economies of scale exist from A to C where the increase in cost is less than the increase in the output.
In the above table, the constant returns to scale exist from C to D where the increase in cost is equal to the increase in the output.
In the above table, the diseconomies of scale exist from D to F where the increase in cost is more than the increase in output.
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