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Can you explain the answer of this question below:
If LAC curve falls as output expands, this is due to ______:
- A:Law of diminishing retains
- B:Economics of scale
- C:Law of variable proportion
- D:Diseconomics of scale
The answer is b.
Verified Answer
Can you explain the answer of this question below:If LAC curve falls a...
Economies of Scale and Long Run Average Cost (LRAC)
In the long run all costs are variable and the scale of production can change (i.e. no fixed inputs)
Economies of scale are the cost advantages from expanding the scale of production in the long run. The effect is to reduce average costs over a range of output
These lower costs represent an improvement in productive efficiency and can give a business a competitive advantage in a market. They lead to lower prices and higher profits – this is called a positive sum game for producers and consumers (i.e. the welfare of both will improve)
This question is part of UPSC exam. View all CA Foundation courses
Most Upvoted Answer
Can you explain the answer of this question below:If LAC curve falls a...
Economics of Scale
When the LAC (long-run average cost) curve falls as output expands, it is due to the economics of scale. This means that as the scale of production increases, the cost of producing each unit of output decreases. This can be explained by several factors:
1. Specialization of Labor: As the scale of production increases, workers can specialize in specific tasks, which leads to greater efficiency and lower costs.
2. Purchasing Power: Larger firms can negotiate better prices for raw materials and other inputs, which reduces their overall costs.
3. Technology: Larger firms can invest more in research and development, which can lead to technological advancements that reduce costs.
4. Marketing and Distribution: Larger firms can spread their marketing and distribution costs over a larger number of units, which reduces the cost per unit.
As a result, firms that experience economics of scale are able to produce more output at a lower cost, which gives them a competitive advantage in the market. This can lead to market consolidation and the emergence of dominant firms in certain industries.
It should be noted that there is a limit to the economics of scale, and eventually, firms will experience diseconomies of scale as they continue to expand. This occurs when the cost per unit of output begins to increase as the scale of production increases.
When the LAC (long-run average cost) curve falls as output expands, it is due to the economics of scale. This means that as the scale of production increases, the cost of producing each unit of output decreases. This can be explained by several factors:
1. Specialization of Labor: As the scale of production increases, workers can specialize in specific tasks, which leads to greater efficiency and lower costs.
2. Purchasing Power: Larger firms can negotiate better prices for raw materials and other inputs, which reduces their overall costs.
3. Technology: Larger firms can invest more in research and development, which can lead to technological advancements that reduce costs.
4. Marketing and Distribution: Larger firms can spread their marketing and distribution costs over a larger number of units, which reduces the cost per unit.
As a result, firms that experience economics of scale are able to produce more output at a lower cost, which gives them a competitive advantage in the market. This can lead to market consolidation and the emergence of dominant firms in certain industries.
It should be noted that there is a limit to the economics of scale, and eventually, firms will experience diseconomies of scale as they continue to expand. This occurs when the cost per unit of output begins to increase as the scale of production increases.
Community Answer
Can you explain the answer of this question below:If LAC curve falls a...
Because all factors are variable
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Can you explain the answer of this question below:If LAC curve falls as output expands, this is due to ______:A:Law of diminishing retainsB:Economics of scaleC:Law of variable proportionD:Diseconomics of scaleThe answer is b.
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Can you explain the answer of this question below:If LAC curve falls as output expands, this is due to ______:A:Law of diminishing retainsB:Economics of scaleC:Law of variable proportionD:Diseconomics of scaleThe answer is b. 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 Can you explain the answer of this question below:If LAC curve falls as output expands, this is due to ______:A:Law of diminishing retainsB:Economics of scaleC:Law of variable proportionD:Diseconomics of scaleThe answer is b. covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Can you explain the answer of this question below:If LAC curve falls as output expands, this is due to ______:A:Law of diminishing retainsB:Economics of scaleC:Law of variable proportionD:Diseconomics of scaleThe answer is b..
Can you explain the answer of this question below:If LAC curve falls as output expands, this is due to ______:A:Law of diminishing retainsB:Economics of scaleC:Law of variable proportionD:Diseconomics of scaleThe answer is b. 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 Can you explain the answer of this question below:If LAC curve falls as output expands, this is due to ______:A:Law of diminishing retainsB:Economics of scaleC:Law of variable proportionD:Diseconomics of scaleThe answer is b. covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Can you explain the answer of this question below:If LAC curve falls as output expands, this is due to ______:A:Law of diminishing retainsB:Economics of scaleC:Law of variable proportionD:Diseconomics of scaleThe answer is b..
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