As a firm attempts to increase its production,its long-run average costs eventually rise because of
A)the law of diminishing returns.
B)diseconomies of scale.
C)fixed capital.
D)insufficient demand.

Question

Quizplus · Accepted Answer

As a firm increases its production in the long run, it may face an increase in its average costs due to various factors such as increased coordination costs, reduced specialization, communication problems, and management difficulties. These factors lead to diseconomies of scale and hence an increase in long-run average costs. The law of diminishing returns only applies in the short run, and fixed capital and insufficient demand do not necessarily lead to an increase in long-run average costs.

As a Firm Attempts to Increase Its Production,its Long-Run Average