The U shape of the long-run average total cost curve is primarily due to:
A) technological change.
B) economies and diseconomies of scale.
C) fixed costs.
D) diminishing returns.

Question

Quizplus · Accepted Answer

The U shape of the long-run average total cost curve is primarily due to economies and diseconomies of scale. Initially, as production increases, firms experience economies of scale, leading to a downward sloping segment of the curve. Beyond a certain level of output, firms may experience diseconomies of scale due to rising costs of production, resulting in an upward sloping segment of the curve. The lowest point on the curve where economies of scale are exhausted is known as the minimum efficient scale (MES).

The U Shape of the Long-Run Average Total Cost Curve