CA Foundation Exam > CA Foundation Questions > The positively sloped (i.e. rising) part of t...
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The positively sloped (i.e. rising) part of the long run average total cost curve is due to which of the following?
- a)Diseconomies of scale.
- b)Increasing returns.
- c)The firm being able to take advantage of large-scale production techniques as it expands its output.
- d)The increase in productivity that results from specialization.
Correct answer is option 'A'. Can you explain this answer?
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The positively sloped (i.e. rising) part of the long run average total...
Explanation:
The long run average total cost (LRATC) curve shows the per-unit cost of producing a given level of output when the firm has the flexibility to adjust all of its inputs. The positively sloped part of the LRATC curve is called diseconomies of scale. It occurs when the firm's average total cost increases as the firm expands its output in the long run. This happens due to the following reasons:
1. Coordination problems: As the firm expands its output, it becomes more complex, and coordination problems arise, increasing the cost of production. This includes communication issues, delays in decision making, and conflicts between departments.
2. Management problems: As the firm expands, it becomes harder to manage efficiently, and the cost of management increases. This includes problems with delegation, supervision, and control.
3. Increasing input costs: As the firm expands, it may face increasing costs of inputs such as labor, raw materials, and energy, which increases the cost of production.
4. Diseconomies of specialization: As the firm becomes larger, it may become too specialized, and its employees may become less versatile, leading to a decline in productivity and an increase in costs.
Conclusion:
Therefore, the positively sloped part of the LRATC curve is due to the diseconomies of scale, which arise as the firm expands its output. These diseconomies can be due to coordination problems, management problems, increasing input costs, and diseconomies of specialization.
The long run average total cost (LRATC) curve shows the per-unit cost of producing a given level of output when the firm has the flexibility to adjust all of its inputs. The positively sloped part of the LRATC curve is called diseconomies of scale. It occurs when the firm's average total cost increases as the firm expands its output in the long run. This happens due to the following reasons:
1. Coordination problems: As the firm expands its output, it becomes more complex, and coordination problems arise, increasing the cost of production. This includes communication issues, delays in decision making, and conflicts between departments.
2. Management problems: As the firm expands, it becomes harder to manage efficiently, and the cost of management increases. This includes problems with delegation, supervision, and control.
3. Increasing input costs: As the firm expands, it may face increasing costs of inputs such as labor, raw materials, and energy, which increases the cost of production.
4. Diseconomies of specialization: As the firm becomes larger, it may become too specialized, and its employees may become less versatile, leading to a decline in productivity and an increase in costs.
Conclusion:
Therefore, the positively sloped part of the LRATC curve is due to the diseconomies of scale, which arise as the firm expands its output. These diseconomies can be due to coordination problems, management problems, increasing input costs, and diseconomies of specialization.
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The positively sloped (i.e. rising) part of the long run average total...
The rising part if LAC is due to diminishing returns to scale .
And Diminishing returns to scale occurs due to external and internal dis economies. Thus the rising part if LAC is due to dis economies of scale
And Diminishing returns to scale occurs due to external and internal dis economies. Thus the rising part if LAC is due to dis economies of scale
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The positively sloped (i.e. rising) part of the long run average total cost curve is due to which of the following?a)Diseconomies of scale.b)Increasing returns.c)The firm being able to take advantage of large-scale production techniques as it expands its output.d)The increase in productivity that results from specialization.Correct answer is option 'A'. Can you explain this answer?
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