The total cost curve:
A)Starts at zero and increases as service capacity increases.
B)Begins high and decreases as service capacity increases.
C)Starts high, declines, then increases again.
D)Remains relatively flat regardless of service capacity.
E)Starts at zero, increases rapidly, then declines slowly back to zero.

Question

Quizplus · Accepted Answer

The total cost curve first starts high as fixed costs are incurred and service capacity is low. As service capacity increases, economies of scale are achieved and the total cost declines. However, there comes a point where further increases in service capacity lead to diminishing returns and increasing costs, causing the total cost curve to increase again. This point is known as the minimum efficient scale.

The Total Cost Curve