Assume that you observe the long-run average cost curve of a local Bookstores, a national chain. Starting from the point on the curve where output is zero and moving to the right, which of the following lists the behaviour of long-run average costs in the correct sequence (that is, which will be observed first, second, etc.)?

Question

Quizplus · Accepted Answer

At the beginning (output=0), the curve shows economies of scale, meaning that as the output increases, the average cost per unit decreases due to increased specialization, division of labor, and bulk discounts. As the output continues to increase, the average cost per unit reaches its minimum point, which is the minimum efficient scale. Beyond this point, the firm experiences diseconomies of scale due to diminishing returns to inputs and increased coordination costs. Finally, at very large levels of output, the long-run average cost curve exhibits constant returns to scale as the benefits of scale are offset by increased bureaucracy and difficulties in managing the organization. Therefore, the correct order is: 
economies of scale; minimum efficient scale; constant returns to scale; diseconomies of scale.

Assume That You Observe the Long-Run Average Cost Curve of a Local