The long-run average cost curve is U-shaped because of which of the following?
A) Constant fixed costs as output is increased.
B) Decreasing average fixed costs as output is increased.
C) Economies and diseconomies of scale.
D) Decreasing marginal returns as more labour is hired.
E) Increasing marginal returns as more labour is hired.

Question

Quizplus · Accepted Answer

The long-run average cost curve is U-shaped because of economies and diseconomies of scale. At lower levels of output, the firm experiences economies of scale, leading to a downward sloping section of the curve. At higher levels of output, the firm experiences diseconomies of scale, leading to an upward sloping section of the curve. The minimum point of the curve represents the point of optimal efficiency for the firm.

The Long-Run Average Cost Curve Is U-Shaped Because of Which