A U-shaped long-run average cost curve indicates that

Question

Quizplus · Accepted Answer

A U-shaped long-run average cost curve indicates that there are economies of scale up to a certain level of production, after which there are diseconomies of scale. This means that as a company increases production, it initially experiences lower costs per unit due to economies of scale (such as bulk purchasing and specialization of labor), but eventually, as the company continues to grow, it faces higher costs per unit due to diseconomies of scale (such as communication problems and bureaucracy). Therefore, choice B, which states that diseconomies of scale follow economies of scale, is the correct answer.

A U-Shaped Long-Run Average Cost Curve Indicates That