The president of Toyota's Georgetown plant was quoted as saying, "Demand for high volumes saps your energy.Over a period of time, it eroded our focus [and] thinned out the expertise and knowledge we painstakingly built up over the years." Based on this quote, what must be true of the plant's average cost of production curve?

Question

Quizplus · Accepted Answer

The quote suggests that the plant experienced diminishing returns to scale, which indicates that the average cost of production curve is upward-sloping. As production increased, the plant's experts were spread thinly, presumably causing a decline in efficiency, which would result in higher average costs.

The President of Toyota's Georgetown Plant Was Quoted as Saying