The figure given below shows three Short Run Average Total Cost (SRATC) curves and the Long Run Average Total Cost (LRATC) curve of a firm.Figure 8.3

-Which of the following would account for the shape of the long-run average-total-cost curve in Figure 8.3?
A)Low worker morale
B)Low productivity
C)Administration overhead
D)Specialization of labor
E)Managerial problems

Question

The figure given below shows three Short Run Average Total Cost (SRATC) curves and the Long Run Average Total Cost (LRATC) curve of a firm.Figure 8.3
 
-Which of the following would account for the shape of the long-run average-total-cost curve in Figure 8.3?
A)Low worker morale 
B)Low productivity 
C)Administration overhead 
D)Specialization of labor 
E)Managerial problems

Quizplus · Accepted Answer

The shape of the LRATC curve is determined by the extent of the firm's economies and diseconomies of scale. In this case, the LRATC curve is U-shaped, which suggests that the firm experiences economies of scale up to a certain output level, after which it experiences diseconomies of scale. This is consistent with the idea of specialization of labor, where the firm can achieve a higher level of output with lower costs up to a certain point, but beyond that point, further increases in output lead to higher costs due to management difficulties, coordination problems, and other factors that reduce efficiency.

The Figure Given Below Shows Three Short Run Average Total