Steve owns a bike store. Last year, his average cost of selling a bike was $1,000. If he expands the size of his store this year and sees his average cost remain the same, his long-run average total cost curve should be:

Question

Quizplus · Accepted Answer

If the average cost of selling a bike remains the same and the size of the store expands, it means that the fixed costs will have to be spread over a larger quantity of bikes. This will result in a decrease in the average total cost curve. The curve will be horizontal at the level of the average cost of selling a bike.

Steve Owns a Bike Store