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Economics (AS & A Level) · Oct / Nov 2023 · Paper 31 · Question 4

9708Types of cost, revenue and profit, short-run and long-run production

The diagram shows a long-run average cost curve (LRAC), and three short-run average cost curves (SRAC1, SRAC2 and SRAC3) for an individual firm. Each short-run average cost curve represents a fixed factor of production. Between levels of output OL and OM, which statement is not correct?

  1. AAverage fixed costs are falling.
  2. BEconomies of scale are being experienced.
  3. CThe law of diminishing returns is operative.
  4. DThere are decreasing returns to scale.

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Correct answer: D. There are decreasing returns to scale.

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