Question

The law of constant returns represents the transition between ______________.

• A. the law of increasing returns and increasing returns to scale
• B. the law of decreasing returns and decreasing returns to scale
• C. the law of increasing returns and the law of diminishing returns
• D. the law of diminishing utility and the law of diminishing returns

Answer 1

Answer: (C)

the law of increasing returns and the law of diminishing returns

It is represented by the flat portion of the AVC curve. Where the marginal cost of hiring one more worker is equal to the marginal increase in productivity of the firm. This region is making optimal use of its resources and thus it is efficient to produce in this zone.