When a firms long run avg cost curve is horizontal for a range of output, then in that range production displays:
a) constant avg fixed costs
b) increasing returns to scale
c) constant returns to scale
d) decreasing returns to scale
i think d
For the avg cost curve to be flat, it must mean that the marginal cost must equal the average cost. Ergo, the MC curve must also be flat. Go with c)
To determine the correct answer, we need to understand the concept of long run average cost (LRAC) curve and its relationship with production.
The LRAC curve represents the average cost per unit of output in the long run, where the firm can adjust all inputs and production levels. When the LRAC curve is horizontal for a range of output, it means that the average cost remains constant within that range.
Now, let's analyze the options:
a) Constant average fixed costs: Average fixed costs (AFC) represent fixed costs divided by output. If the LRAC curve is horizontal, it means that average cost (AC) remains constant, but it does not imply that AFC is also constant. Therefore, option a) is not the correct answer.
b) Increasing returns to scale: Returns to scale refer to the relationship between the increase in inputs and the resulting increase in output. If the LRAC curve is horizontal, it means that the firm is experiencing constant returns to scale (option c) or decreasing returns to scale (option d), but not increasing returns to scale. Therefore, option b) is not the correct answer.
c) Constant returns to scale: Constant returns to scale occur when increasing all inputs proportionately results in a proportional increase in output. If the LRAC curve is horizontal, it implies that the firm is experiencing constant returns to scale, and the average cost per unit of output remains the same within that range. Therefore, option c) is the correct answer.
d) Decreasing returns to scale: Decreasing returns to scale occur when increasing all inputs proportionately results in a less-than-proportional increase in output. If the LRAC curve is horizontal, it does not indicate decreasing returns to scale. Therefore, option d) is not the correct answer.
In conclusion, the correct answer is option c) constant returns to scale.