Empirical studies of production suggest that the long-run average cost curve
A)is U-shaped
B)has an inverted L shape
C)is L-shaped
D)is horizontal
E)shows diminishing marginal returns

Question

Quizplus · Accepted Answer

Empirical studies have consistently shown that the long-run average cost curve is U-shaped, indicating that there is an optimal level of production where the firm can minimize its average costs. As production initially increases, there are benefits to be gained from specialization and division of labor, leading to a decrease in average costs. However, at some point, diminishing marginal returns set in, causing average costs to increase again as the firm produces more. Therefore, the long-run average cost curve is U-shaped, with the lowest point of the curve representing the optimal level of production for the firm.

Empirical Studies of Production Suggest That the Long-Run Average Cost