If the long-run average cost curve is U-shaped, the optimal scale of production from society's viewpoint is
A)the minimum efficient scale.
B)where maximum economic profit is earned by producers.
C)where firm profit is large enough to finance research and development.
D)one which guarantees economic profit.

Question

Quizplus · Accepted Answer

The U-shaped long-run average cost curve implies that there is a range of output levels over which the average cost of production is decreasing. This range is bounded by the minimum efficient scale (MES) at the lower end and the point where the average cost increases due to diminishing returns to scale at the higher end. Thus, the optimal scale of production from society's viewpoint is the MES, where production is efficient and costs are minimized. This scale of production allows firms to produce at lowest cost and pass on these cost savings to consumers in the form of lower prices.

If the Long-Run Average Cost Curve Is U-Shaped, the Optimal