Economies of scale
A)Exist in both the short run and the long run.
B)Explain why average variable and average total costs decline in the short run.
C)Explain why average total costs decline as output increases in the long run.
D)Explain why average total costs increase as output increases in the long run.

Question

Quizplus · Accepted Answer

Economies of scale refer to the cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output decreasing with increasing scale. This phenomenon primarily explains why average total costs decline as output increases in the long run, as firms can spread fixed costs over more units of output and achieve efficiencies in production processes.

Economies of Scale