A Firm's Average Cost Increases as It Increases Its Output

question 115

Multiple Choice

A firm's average cost increases as it increases its output by expanding its plant and hiring additional workers (its only inputs to production) . The firm's owner blames the increase in per-unit costs on the law of diminishing marginal productivity. The owner's reasoning is:

• A) correct because some inputs are fixed in the long run.
• B) incorrect because economies of scale are present.
• C) correct because marginal productivity must decrease in the short run.
• D) incorrect because all inputs are varied in the example.