The positively sloped (i.e. rising) part of the long run average total...
The positively sloped (i.e. rising) part of the long run average total cost curve is due to diseconomies of scale
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The positively sloped (i.e. rising) part of the long run average total...
The positively sloped part of the long run average total cost (LRATC) curve is due to diseconomies of scale. Diseconomies of scale occur when a firm's average total cost increases as it expands its output in the long run.
Diseconomies of scale can be attributed to several factors, including:
1. Managerial and Coordination Issues:
- As a firm grows larger, it becomes more difficult to coordinate and manage its operations effectively.
- Communication and decision-making processes may become slower and less efficient, leading to increased costs.
- The need for additional layers of management and bureaucracy may also arise, further increasing costs.
2. Increased Complexity and Specialization:
- Larger firms often have more complex production processes and product lines.
- Specialized machinery and equipment may be required, which can be expensive to acquire and maintain.
- Training and managing specialized workers can also be more challenging and costly.
3. Diseconomies of Scope:
- When a firm produces a wide range of products or operates in multiple markets, it may face diseconomies of scope.
- The firm may struggle to efficiently allocate resources across different products or markets, leading to increased costs.
4. Lack of Flexibility:
- Larger firms may find it harder to quickly adapt to changes in the market or respond to customer demands.
- Bureaucratic processes and organizational inertia can hinder innovation and agility, resulting in higher costs.
Overall, these factors contribute to higher average total costs as a firm expands its output beyond a certain point. As a result, the LRATC curve slopes upward in the region of diseconomies of scale.
It's important to note that the LRATC curve consists of three segments: economies of scale (downward sloping), constant returns to scale (flat), and diseconomies of scale (upward sloping). The positively sloped part represents the point at which the firm starts experiencing diseconomies of scale.
In summary, the positively sloped part of the LRATC curve is due to diseconomies of scale, which arise from managerial and coordination issues, increased complexity and specialization, diseconomies of scope, and lack of flexibility. These factors lead to higher average total costs as a firm expands its output in the long run.
The positively sloped (i.e. rising) part of the long run average total...
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