If a firm's long-run average total curve shows that it can produce 5,000 DVDs at an average cost of $2.00 and 15,000 DVDs at an average cost of $1.50, this is evidence of
A)diminishing returns.
B)economies of scale.
C)diseconomies of scale.
D)the law of supply.

Question

Quizplus · Accepted Answer

The decreasing average cost as output increases indicates economies of scale, where the firm benefits from producing at a larger scale due to spreading fixed costs over more units of output and potentially accessing bulk discounts for inputs. Diminishing returns would result in increasing average costs at higher levels of output, and diseconomies of scale would show a rising average cost curve as output increases. The law of supply is not applicable in this scenario as it focuses on the relationship between price and quantity supplied, not the relationship between output and average cost.

If a Firm's Long-Run Average Total Curve Shows That It