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A firm's average cost decreases in the long-run because of

Economics
JAMB 2024

A firm's average cost decreases in the long-run because of

  • A. increasing returns to scale
  • B. diminishing average returns
  • C. decreasing average fixed cost
  • D. decreasing marginal returns
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Correct Answer: Option A
Explanation

Increasing returns to scale occur when a firm increases its inputs (such as labor and capital) in the production process, resulting in a more than proportionate increase in output. As a result, the firm experiences economies of scale, leading t a decrease in average cost. When the firm can produce more output with the same or lower cost per unit, the average cost decreases.


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