As a firm expands its output, cost per unit of output (average cost) decreases and then increases. Average cost and output have
A) a relationship with a minimum.
B) a relationship with a maximum.
C) no relationship.
D) a linear positive relationship.

Question

Quizplus · Accepted Answer

The average cost first decreases as output increases due to economies of scale, then increases due to diseconomies of scale, indicating a U-shaped curve or a relationship with a minimum.

As a Firm Expands Its Output, Cost Per Unit of Output