If a Firm Builds a Larger Plant and Constant Returns

question 100

Multiple Choice

If a firm builds a larger plant and constant returns to scale apply,which of the following statements is correct?

• A)The capacity output of the larger plant has a lower average cost.
• B)The capacity output of the larger plant has the same average cost.
• C)Economies of scale are present.
• D)LRAC will decrease as output increases.

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Definitions:

Appraise

To appraise is to evaluate or estimate the nature, quality, ability, extent, or significance of something or someone, often used in the context of property or art valuation.

Proportion

A part of a whole expressed as a fraction or percentage, often used to compare quantities in terms of size or magnitude.

Quick Ratio

A liquidity measure that indicates a company's ability to cover its short-term liabilities with its most liquid assets.

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term obligations or those due within one year, calculated as current assets divided by current liabilities.