Author Question: Are the short-run and long-run average cost curves U-shaped for the same reason? Explain. What ... (Read 167 times)

chads108 · **on:** Jun 29, 2018

Are the short-run and long-run average cost curves U-shaped for the same reason? Explain.

What will be an ideal response?

Question 2

What does a labor supply curve represent? What does it look like?

What will be an ideal response?

bpool94 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

The short-run average cost curve is U-shaped because of the law of diminishing returns. The long-run supply curve is U-shaped because of diseconomies of scale.

Answer to Question 2

A labor supply curve is a diagram that shows the quantity of labor supplied at different wage rates. Its shape depends on how households react to changes in the wage rate. It will typically slope upwards as long as the substitution effect dominates. However, there is a possibility that the labor supply curve could bend backwards at higher wages if the income effect dominates the substitution effect.