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Question l shaped average cost curve is witnessed in the large firms because (paper ii) choices mcq choice (4 response the law of constant returns to scale oper
Question L shaped average cost curve is witnessed in the large firms because (Paper II) Choices MCQ CHOICE (4 RESPONSE The law of constant returns to scale operates. a. b. Only the law of increasing returns operates. Only the law of constant return operates. C. C. d. The operation of law of decreasing returns is continuously postponed.
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Nidhi taparia Best Answer
The correct answer is d. Option a. is not right because in the theory of cost curves, we consider returns to a factor and not returns to scale. Option b. is incorrect because if law of increasing returns would operate, costs would in fact fall. In an L-shaped cost curve, costs are constant for a considerable period of time. Option c. seems to be correct but in comparison to option d. it is not right. This is because as a matter of fact economists agree thar constant returns to factor are not a very realistic phenomena. When an L-shaped cost curve is observed, it is understood that the firm is only delaying diminishing returns and not averting them altogether. Ultimately, a factor of production will experience diminishing returns.