The table given below shows the average total cost of production of a firm at different levels of the output.Table 8.5

-The long-run average total cost curve is U-shaped because:
A)a firm initially experiences economies of scale and then diseconomies of scale.
B)the law of diminishing returns to a factor sets in beyond a certain level of output.
C)a firm initially experiences diseconomies of scale and then economies of scale.
D)division of labor keeps labor productivity constant irrespective of expansion or contraction in production.
E)the efficiency of capital increases over a period of time.

Question

The table given below shows the average total cost of production of a firm at different levels of the output.Table 8.5
 
-The long-run average total cost curve is U-shaped because:
A)a firm initially experiences economies of scale and then diseconomies of scale. 
B)the law of diminishing returns to a factor sets in beyond a certain level of output. 
C)a firm initially experiences diseconomies of scale and then economies of scale. 
D)division of labor keeps labor productivity constant irrespective of expansion or contraction in production. 
E)the efficiency of capital increases over a period of time.

Quizplus · Accepted Answer

The long-run average total cost curve is U-shaped because initially, as production expands, the firm experiences economies of scale due to factors such as specialization, division of labor, and greater use of capital. This leads to a decline in average total cost. Beyond a certain level of output, the firm may start experiencing diseconomies of scale due to factors such as increased coordination costs, management difficulties, and resource constraints. This leads to an increase in average total cost. Therefore, the long-run average total cost curve is U-shaped, with a minimum point that represents the minimum efficient scale of production.

The Table Given Below Shows the Average Total Cost of Production