If the minimum points of all the possible short-run average total cost curves become successively lower as quantity of output increases, then:
A) the firm should try to produce less output.
B) total fixed costs are constant along the LRAC curve.
C) there are economies of scale.
D) when output is doubled, total costs are doubled.

Question

Quizplus · Accepted Answer

The decreasing minimum points of the short-run average total cost curves indicate economies of scale. This means that as the quantity of output increases, the firm is able to produce at a lower average cost due to factors such as specialization, efficiency gains, and cost-sharing. Therefore, the firm should try to produce more output to take advantage of these economies of scale. Total fixed costs may or may not be constant along the LRAC curve, and doubling output does not necessarily result in doubling total costs.

If the Minimum Points of All the Possible Short-Run Average