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JAMB Economics 1999 Question 14

Question 14

Theory of Costs and Revenue

The downward sloping part of the long-run average cost curve of a firm may be attributable to

  1. A.diminishing returns
  2. B.the law of variable proportions
  3. C.diseconomies of scale
  4. D.increasing returns to scale.
Show the answer and explanation

Answer: D (increasing returns to scale.)

Explanation

In the long run all inputs can change. LRAC falls when doubling inputs more than doubles output (increasing returns to scale).