The shape of the long-run average cost curve reflects
A)market demand
B)economies and diseconomies of scale
C)increasing and diminishing marginal returns
D)productivity of fixed inputs
E)all of the above

Question

Quizplus · Accepted Answer

The long-run average cost curve reflects economies and diseconomies of scale since it shows the lowest average cost of production for a given level of output, taking into account all possible combinations of inputs. The curve is U-shaped due to the presence of economies of scale initially and later the existence of diseconomies of scale as the scale of production increases beyond a certain point. The other options (market demand, increasing and diminishing marginal returns, productivity of fixed inputs) do not directly determine the shape of the LRAC curve.

The Shape of the Long-Run Average Cost Curve Reflects