If a firm’s long-run average total cost increases by 6% if output is increased by 6%, the firm is experiencing : ANSWER : diseconomies of scale ---------- Can anyone please explain why the answer is not constant returns to scale’ ? i mean… 6% = 6% right…?
If average cost increases by 6%, marginal cost increases by _ more than _ 6%, so ΔMC > Δoutput: diseconomies of scale.
(You need to compare average to average, or marginal to marginal; you cannot compare average to marginal.)
Diseconomies of scale lead the marginal cost of a product to increase as a company grows, So you can not reach the answer here only by comapring with increase in output only. here you need to compare with previous output increase with previous average cost increase.
What if a firm’s long-run average total cost increases by 5% if output is increased by 6%, the firm is experiencing?
You cannot tell.
Yes you can not compare ATC with MC directly you need to have a more information to compare.