The figure given below shows three Short Run Average Total Cost (SRATC)curves and the Long Run Average Total Cost (LRATC)curve of a firm. Figure 21.3 Which of the following would account for the shape of the long-run average-total-cost curve in Figure 21.3?

Question

The figure given below shows three Short Run Average Total Cost (SRATC)curves and the Long Run Average Total Cost (LRATC)curve of a firm. Figure 21.3  Which of the following would account for the shape of the long-run average-total-cost curve in Figure 21.3?

Quizplus · Accepted Answer

The shape of the LRATC curve is determined by the economies of scale experienced by the firm as it varies all its inputs in the long run. If a firm experiences increasing returns to scale (LRATC decreases) as it increases its output, this suggests that specialization of labor is occurring. As workers become specialized in their tasks, they become more efficient, and the firm can produce output at a lower cost. Therefore, choice D is the best answer. The other options (low worker morale, low productivity, administration overhead, and managerial problems) would likely lead to an increase in costs and therefore a shift upward in all cost curves.

The Figure Given Below Shows Three Short Run Average Total