Suppose Firm A, a large automobile manufacturer in the United States, found that as it increased its production of automobiles, its long-run average total costs declined at first, but then slowly began to increase again, even when all of its resources were variable over time. According to economic theory, this phenomenon illustrates

Question

Quizplus · Accepted Answer

This phenomenon illustrates first economies of scale, where increasing production leads to lower long-run average total costs, but then diseconomies of scale, where further increases in production lead to higher long-run average total costs. It suggests that the optimal scale of production may not always be the largest possible scale, indicating that there may be limits to the benefits of size in production.

Suppose Firm A, a Large Automobile Manufacturer in the United