The long-run average cost curve is U-shaped because of which of the following?
A) decreasing marginal returns as more labor is hired
B) constant fixed costs as output is increased
C) economies and diseconomies of scale
D) increasing marginal returns as more labor is hired
E) decreasing average fixed costs as output is increased

Question

Quizplus · Accepted Answer

The U-shaped long-run average cost curve is due to economies and diseconomies of scale. At smaller levels of output, the firm experiences economies of scale, leading to a downward-sloping cost curve. As the output level continues to increase, the firm eventually reaches a point where it experiences diseconomies of scale, resulting in an upward-sloping cost curve. At the point where the marginal cost curve intersects the average cost curve, the firm reaches its minimum efficient scale, where it can produce at the lowest unit cost possible.

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