Author Question: Explain the cost advantage of a firm operating at constant returns to ... (Read 62 times)

wrbasek0 · **on:** Jun 30, 2018

Explain the cost advantage of a firm operating at constant returns to scale.

Question 2

The returns that skilled engineering professionals earn consist of both transfer earnings and economic rent. This implies that:
a. demand for these professionals is highly elastic.
b. the supply curve of skilled engineering professionals is upward-sloping.
c. the supply curve of skilled engineering professionals is backward bending.
d. demand for these professionals is perfectly inelastic.
e. the supply curve of skilled engineering professionals is vertical.

Silverbeard98 · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

If we compare a firm operating in the constant returns to scale range to a firm that is operating in the economies of scale range, there are significant differences. The firm in the economies of scale range has not yet reached the lowest possible cost per unit because it is producing too small of a quantity. In contrast, the firm in the constant cost range is producing beyond its minimum efficient scale, with the lowest possible cost per unit and therefore enjoys an advantage over smaller firms with higher costs.

Answer to Question 2

b