Dineo Enterprises is experiencing economies of scale.
Which of the following must be true?

Choose 1 answer:
(A) All of the firm's costs are implicit.
(B) This firm's long-run average total cost curve is flat.
(C) Long-run average total cost decreases if Dineo Enterprises increases output.
(D) Dineo Enterprises' economic profits will decrease if it increases output.
(E) Proportionate increases in inputs result in proportionate increases in outputs.

Question

Dineo Enterprises is experiencing economies of scale.
Which of the following must be true?

Choose 1 answer:
(A) All of the firm's costs are implicit.
(B) This firm's long-run average total cost curve is flat.
(C) Long-run average total cost decreases if Dineo Enterprises increases output.
(D) Dineo Enterprises' economic profits will decrease if it increases output.
(E) Proportionate increases in inputs result in proportionate increases in outputs.

Accepted Answer

∻Solution∻ ‖ a ⋮ Definition of Economies of Scale: Economies of scale occur when increasing the scale of production leads to a lower cost per unit of output. ‖ ‖ b ⋮ Analysis of Answer Choices: - (A) is incorrect because not all costs need to be implicit for economies of scale to occur. - (B) is incorrect because a flat long-run average total cost curve indicates constant returns to scale, not economies of scale. - (C) is correct because if Dineo Enterprises is experiencing economies of scale, increasing output will lead to a decrease in long-run average total cost. - (D) is incorrect because economic profits are not directly related to economies of scale; they depend on market conditions and other factors. - (E) is incorrect because proportionate increases in inputs resulting in proportionate increases in outputs describe constant returns to scale, not economies of scale. ‖ ∻Answer∻ ⚹ (C) Long-run average total cost decreases if Dineo Enterprises increases output. ⚹ ∻Key Concept∻ ⚹ Economies of Scale ⚹ ∻Explanation∻ ⚹ When a firm experiences economies of scale, its long-run average total cost decreases as it increases output. This is due to factors such as specialization, bulk buying, and spreading fixed costs over a larger number of units. ⚹◊What impact does economies of scale have on a firm's long-run average total cost curve?⍭ Generate me a similar question◊

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