Question

For the average total cost curve of a firm without economies of scale, what happens to costs as output increases?

Answer 1

Answer:

a.Costs initially go down and then go up.

Explanation:

The average total cost curve of an enterprise consists of the sum of the fixed cost curve and the variable cost curve. Fixed costs are those that cannot be eliminated in the short term, such as the utility bill. Varied costs are those that can be reduced if the company decreases the quantity produced. For example, inputs and labor.

Thus, initially the total cost curve tends to decrease as production increases, as fixed costs are slowly diluted as the production process advances. However, at some point this cost curve tends to increase, because if there is no economy of scale, marginal production will be decreasing, ie, after a certain point of production, each additional production will be more expensive (will require more variable costs ) and this will lead to an inflection in the average cost curve, which will increase further.