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Economies and diseconomies of scale explain why the:
- a)short-run average fixed cost curve declines so long as output increases.
- b)marginal cost curve must intersect the minimum point of the firm's average total cost curve.
- c)long-run average total cost curve is typically U-shaped.
- d)short-run average variable cost curve is U-shaped.
Correct answer is option 'C'. Can you explain this answer?
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Economies and diseconomies of scale explain why the:a)short-run averag...
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Economies and diseconomies of scale explain why the:a)short-run averag...
Explanation:
Economies of Scale:
Economies of scale refer to the cost advantages that a firm experiences as it increases its level of output. These cost advantages arise due to various factors such as:
1. Specialization of labor and capital.
2. Bulk purchasing of raw materials.
3. Efficient use of machinery and equipment.
4. Lower transportation costs.
5. Greater bargaining power with suppliers, etc.
Diseconomies of Scale:
Diseconomies of scale refer to the cost disadvantages that a firm experiences as it increases its level of output. These cost disadvantages arise due to various factors such as:
1. Difficulty in managing a large organization.
2. Communication problems.
3. Coordination problems.
4. Bureaucracy and red tape.
5. Increased transportation costs, etc.
Short-run average fixed cost curve:
The short-run average fixed cost curve declines so long as output increases because fixed costs are spread over a larger amount of output, leading to a decrease in average fixed cost. However, beyond a certain level of output, the average fixed cost curve starts increasing due to the operation of the law of diminishing returns.
Marginal cost curve:
The marginal cost curve must intersect the minimum point of the firm's average total cost curve because if the marginal cost is less than the average total cost, then the firm can reduce its average cost by increasing output. Similarly, if the marginal cost is greater than the average total cost, then the firm can reduce its average cost by decreasing output.
Short-run average variable cost curve:
The short-run average variable cost curve is U-shaped because initially, as output increases, the average variable cost decreases due to economies of scale. However, beyond a certain level of output, the average variable cost starts increasing due to the operation of the law of diminishing returns.
Long-run average total cost curve:
The long-run average total cost curve is typically U-shaped because it takes into account both economies and diseconomies of scale. Initially, as output increases, the average total cost decreases due to economies of scale. However, beyond a certain level of output, the average total cost starts increasing due to diseconomies of scale.
Economies of Scale:
Economies of scale refer to the cost advantages that a firm experiences as it increases its level of output. These cost advantages arise due to various factors such as:
1. Specialization of labor and capital.
2. Bulk purchasing of raw materials.
3. Efficient use of machinery and equipment.
4. Lower transportation costs.
5. Greater bargaining power with suppliers, etc.
Diseconomies of Scale:
Diseconomies of scale refer to the cost disadvantages that a firm experiences as it increases its level of output. These cost disadvantages arise due to various factors such as:
1. Difficulty in managing a large organization.
2. Communication problems.
3. Coordination problems.
4. Bureaucracy and red tape.
5. Increased transportation costs, etc.
Short-run average fixed cost curve:
The short-run average fixed cost curve declines so long as output increases because fixed costs are spread over a larger amount of output, leading to a decrease in average fixed cost. However, beyond a certain level of output, the average fixed cost curve starts increasing due to the operation of the law of diminishing returns.
Marginal cost curve:
The marginal cost curve must intersect the minimum point of the firm's average total cost curve because if the marginal cost is less than the average total cost, then the firm can reduce its average cost by increasing output. Similarly, if the marginal cost is greater than the average total cost, then the firm can reduce its average cost by decreasing output.
Short-run average variable cost curve:
The short-run average variable cost curve is U-shaped because initially, as output increases, the average variable cost decreases due to economies of scale. However, beyond a certain level of output, the average variable cost starts increasing due to the operation of the law of diminishing returns.
Long-run average total cost curve:
The long-run average total cost curve is typically U-shaped because it takes into account both economies and diseconomies of scale. Initially, as output increases, the average total cost decreases due to economies of scale. However, beyond a certain level of output, the average total cost starts increasing due to diseconomies of scale.
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Economies and diseconomies of scale explain why the:a)short-run average fixed cost curve declines so long as output increases.b)marginal cost curve must intersect the minimum point of the firms average total cost curve.c)long-run average total cost curve is typically U-shaped.d)short-run average variable cost curve is U-shaped.Correct answer is option 'C'. Can you explain this answer?
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Economies and diseconomies of scale explain why the:a)short-run average fixed cost curve declines so long as output increases.b)marginal cost curve must intersect the minimum point of the firms average total cost curve.c)long-run average total cost curve is typically U-shaped.d)short-run average variable cost curve is U-shaped.Correct answer is option 'C'. Can you explain this answer? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about Economies and diseconomies of scale explain why the:a)short-run average fixed cost curve declines so long as output increases.b)marginal cost curve must intersect the minimum point of the firms average total cost curve.c)long-run average total cost curve is typically U-shaped.d)short-run average variable cost curve is U-shaped.Correct answer is option 'C'. Can you explain this answer? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Economies and diseconomies of scale explain why the:a)short-run average fixed cost curve declines so long as output increases.b)marginal cost curve must intersect the minimum point of the firms average total cost curve.c)long-run average total cost curve is typically U-shaped.d)short-run average variable cost curve is U-shaped.Correct answer is option 'C'. Can you explain this answer?.
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