If the long-run average cost curve is U-shaped, what is the optimal scale of production from society's viewpoint?
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 indicates that there is a range of output levels where firms can achieve economies of scale and realize lower average costs. At a certain point, however, the diminishing returns to scale set in, causing the average cost to increase. The minimum efficient scale represents the level of output where the firm achieves the lowest average cost and is able to produce at the lowest cost possible. Thus, from society's viewpoint, the optimal scale of production is where the firm operates at its minimum efficient scale.

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