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JAMB Economics 2009 Question 21

Question 21

Theory of Costs and Revenue

The shape of the long-run average cost curve is best explained by the

  1. A.law of diminishing returns
  2. B.law of returns to scale
  3. C.cost of fixed inputs
  4. D.cost of variable inputs
Show the answer and explanation

Answer: B (law of returns to scale)

Explanation

In the long run all inputs vary, so LRAC first falls (increasing returns to scale) and later rises (decreasing returns to scale).