Author Question: If a firm's short-run average cost curves are u-shaped, does this imply that the long-run average ... (Read 123 times)

BrownTown3 · **on:** Jun 29, 2018

If a firm's short-run average cost curves are u-shaped, does this imply that the long-run average cost curve must also be u-shaped?

What will be an ideal response?

Question 2

Refer to Scenario 1-2. Using marginal analysis terminology, another economic term for the incremental cost of producing the last 300 hats is

A) marginal cost. B) explicit cost.
C) operating cost. D) Any of the above terms are correct.

Sierray · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

No. The short-run average cost curves are u-shaped because of gains from division of labor in the beginning and then diminishing returns due to the fixed scale of production in the short run. In the long run, the firm is able to change its scale of production so no diminishing returns occur. Thus, the shape of the long-run average cost curve depends on whether the firm faces increasing, constant, or decreasing returns to scale.

Answer to Question 2

A