Micro

Production & Costs

Medium

In the long run, average cost must be rising as the firm increases output as long as the.......... operates.

Increasing Returns to Scale.

Law of Variable Proportions.

Decreasing Returns to Scale.

Constant Returns to Scale.

✅ Correct Option: 3

Option 1 -> Increasing Returns to Scale lead to declining average costs, not rising costs.

Option 2 -> Law of Variable Proportions is a short-run concept with fixed factors, not applicable in the long run.

Option 3 -> Decreasing Returns to Scale cause output to increase proportionately less than inputs, resulting in rising average costs.

Option 4 -> Constant Returns to Scale result in constant average costs, not rising costs.

Hence, Decreasing Returns to Scale -> In the long run, all factors of production are variable. When a firm experiences decreasing returns to scale, a proportionate increase in all inputs leads to a less than proportionate increase in output. This means the cost per unit of output (average cost) rises as production expands. For example, if inputs double but output increases by less than double, the average cost must increase. This is the only scenario among the options where long-run average cost rises with increased output -> correct

2026: 21 May Shift 2

The set of all possible combinations of the two inputs that yield the same maximum possible level of output is called?

2025: 13 May Shift 2

The tendency where marginal productivity first increases then starts falling is known as ______

2025: 31 May Shift 1

From the following which is incorrect with respect to firm's profit maximization in long run?

Price = Long Run Marginal Cost
LRMC is first decreasing and then increasing
Price = Short Run Marginal Cost
Price ≥ Long Run Average Variable Cost

2025: 30 May Shift 2

The collection of all possible combinations of goods and services that can be produced from a given amount of resources and a given stock of technological knowledge.

2025: 15 May Shift 1

Choose the incorrect option from the following with reference to production in the short run.

2026: 31 May Shift 1

Find the correct statements from the following in respect to production:

A. Average Product of Labour ( $AP_L$ )= Total Product of Labour / Labor.

B. Marginal Product of Labour ( $MP_L$ )= Change in total Product of Labour / Change in Labour.

C. Addition input gives constant return in increasing return to scale concept.

D. Law of variable proportions say that the marginal product of a factor input initially rises with its employment level, then after certain level it start falling.

Choose the correct answer from the options given below:

In the long run, average cost must be rising as the firm increases output as long as the.......... operates.

Solution

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