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 decrease to $950, his long-run average total cost curve should be:

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Quizplus · Accepted Answer

When Steve expands the size of his store and sees his average cost decrease, this suggests that he is experiencing economies of scale. As he produces at a larger scale, he benefits from advantages such as bulk purchases of materials and more efficient production processes. As a result, his long-run average total cost curve should be downward-sloping, indicating that his average cost per bike decreases as he produces more bikes.

Steve Owns a Bike Store