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A firm encountering economies of scale over some range of output will have a:
- a)rising long-run average cost curve.
- b)falling long-run average cost curve.
- c)constant long-run average cost curve.
- d)rising, then falling, then rising long-run average cost curve.
Correct answer is option 'B'. Can you explain this answer?
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A firm encountering economies of scale over some range of output will ...
Economies of scale refer to the cost advantages that firms can achieve by increasing their output. This means that as the firm produces more, the average cost of production decreases. In this context, the long-run average cost (LRAC) curve is a graphical representation of the firm's cost structure over different levels of output in the long run.
Falling Long-Run Average Cost Curve:
When a firm encounters economies of scale over some range of output, its long-run average cost curve will be falling. This means that as the firm increases its output, it can produce at a lower cost per unit. There are several reasons why this might occur:
- Specialization: As the firm produces more, it can specialize in particular tasks and become more efficient at them. For example, a factory that produces 100 units of a product may require a certain amount of labor to operate, but a factory that produces 1000 units of the same product might not require ten times the labor. This is because the workers become more specialized and efficient at their tasks.
- Bulk purchasing: As the firm buys more inputs (such as raw materials), it may be able to negotiate lower prices. This is because suppliers may be willing to give discounts for larger orders.
- Spreading fixed costs: Some costs (such as rent or insurance) are fixed, meaning they do not vary with the level of output. As the firm produces more, these fixed costs are spread over a larger number of units, reducing the average cost per unit.
Conclusion:
In summary, a firm encountering economies of scale over some range of output will have a falling long-run average cost curve. This reflects the cost advantages that the firm can achieve by producing at a larger scale.
Falling Long-Run Average Cost Curve:
When a firm encounters economies of scale over some range of output, its long-run average cost curve will be falling. This means that as the firm increases its output, it can produce at a lower cost per unit. There are several reasons why this might occur:
- Specialization: As the firm produces more, it can specialize in particular tasks and become more efficient at them. For example, a factory that produces 100 units of a product may require a certain amount of labor to operate, but a factory that produces 1000 units of the same product might not require ten times the labor. This is because the workers become more specialized and efficient at their tasks.
- Bulk purchasing: As the firm buys more inputs (such as raw materials), it may be able to negotiate lower prices. This is because suppliers may be willing to give discounts for larger orders.
- Spreading fixed costs: Some costs (such as rent or insurance) are fixed, meaning they do not vary with the level of output. As the firm produces more, these fixed costs are spread over a larger number of units, reducing the average cost per unit.
Conclusion:
In summary, a firm encountering economies of scale over some range of output will have a falling long-run average cost curve. This reflects the cost advantages that the firm can achieve by producing at a larger scale.
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A firm encountering economies of scale over some range of output will ...
When LAC curve is falling it enjoys certain economies of scale such as using the machinery at optimum level which decreases cost of production . It is economies of scale .
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A firm encountering economies of scale over some range of output will have a:a)rising long-run average cost curve.b)falling long-run average cost curve.c)constant long-run average cost curve.d)rising, then falling, then rising long-run average cost curve.Correct answer is option 'B'. Can you explain this answer?
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