Question

The long-run average cost curve is typically _______________________. a) downward-sloping at first but then b) upward-sloping upward-sloping at first but then c) downward-sloping always d) downward-sloping always upward-sloping

Answer 1

Answer:

A. downward-sloping at first but then upward-sloping

Explanation:

The long-run average cost curve is typical "downward-sloping at first but then upward-sloping." This can be shown as the long-run average cost curve is graphically represented in a U shape.

The reason is that the long-run average cost of production initially falls as a result of increase returns to scale as output is increased, however, at some stage beyond this certain this, the long-run average cost of production rises because of decreasing returns of scale.