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Economics (AS & A Level) · Oct / Nov 2024 · Paper 32 · Question 3

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

Diagrams 1 and 2 show different long-run average cost curves (LRAC). Which situations do the two diagrams show?

  1. Afalling returns to scale | average cost is greater than marginal cost
  2. Bfalling returns to scale | rising returns to scale
  3. Cunit cost falls as output increases | falling average fixed costs
  4. Dunit cost falls as output increases | unit cost rises as output increases

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Correct answer: D. unit cost falls as output increases | unit cost rises as output increases

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