A Firm's Short-Run Average Cost Curve Is U-Shaped

question 61

Multiple Choice

A firm's short-run average cost curve is U-shaped. Which of these conclusions can be reached regarding the firm's returns to scale?

• A) The firm experiences increasing returns to scale.
• B) The firm experiences increasing, constant, and decreasing returns in that order.
• C) The firm experiences first decreasing, then increasing returns to scale.
• D) The short-run average cost curve reveals nothing regarding returns to scale.

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Definitions:

Cost-to-Retail Ratio

A method used in retail to calculate the cost of goods sold based on the ratio of the cost of goods available for sale to the retail price of the goods.

Retail Inventory Method

An accounting method used by retailers to estimate inventory levels by incorporating the cost to retail price ratio.

Sales Discounts

Reductions in the price of goods or services offered to customers, typically as an incentive to encourage prompt payment.

Ending Inventory

The total value of goods available for sale at the end of an accounting period.