Home/ Questions/True or false. The U shape of the long-run ATC curve is the result of diminishing returns.
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Asked: 2022-04-09T18:06:47+00:00 In:

True or false. The U shape of the long-run ATC curve is the result of diminishing returns.

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True or false. The U shape of the long-run ATC curve is the result of diminishing returns.

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The most common longer-run ATC curve has a U shape which is a sign of economies of scale when the slope is negative and also economies of scale when there is an upward slope. If the company has a superior competitive advantage in all markets for inputs, and consequently, the cost per unit of its inputs does not change due to the amount of inputs that it buys, it could be demonstrated that at a specific amount of output it is able to benefit from scale (i.e. operating in the downward-sloping part of the long-run mean cost curve) only if it is profitable. as the company grows in size, it is only one aspect of the production process.

In addition, it is not economic due to scale (operating in an upward-sloping region of the long-run mean cost curve) only if it experiences declining returns to scale, and therefore is therefore uneconomical. Also, economies of scale are not a factor if it earns constant returns on scale. If the firm does not have a superior rival in the market for inputs and has no economies of scale, these conclusions will be altered.

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    Expert

    FALSE. Because:

    It happens because of the dominance of average fixed cost (AFC), which causes the average total cost (ATC) to fall. After a while, though the average variable cost (AVC) becomes dominant and the average total cost (ATC) starts to increase.

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