A U-shaped long-run average total cost curve can be explained by firms increasing their size to do which of the following?
(i) take advantage of greater specialisation
(ii) avoid coordination problems
(iii) avoid fixed costs
A)(i) and (ii)
B)(ii) and (iii)
C)(i) only
D)(i), (ii) and (iii)

Question

Quizplus · Accepted Answer

The U-shaped long-run average total cost curve can be explained by firms increasing their size to take advantage of greater specialization (economies of scale) initially, which lowers costs. However, as firms continue to grow, they may face coordination problems, which can increase costs, but avoiding coordination problems is not a reason for the U-shape. Avoiding fixed costs is also not a reason for the U-shape, as fixed costs are spread out over more units of production as a firm grows, contributing to the initial downward slope of the curve.

A U-Shaped Long-Run Average Total Cost Curve Can Be Explained