shape of the long run average total cost curve
How can the extent to which the presence of economies and diseconomies of scale in an industry help account for the size and the number of firms in that industry? That is, if economies of scale are quite extensive in a particular industry, would you expect a large number of relatively small firms or a small number of relatively large firms operating within that industry? What if diseconomies of scale set in at a relatively small output level?
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Economy of scale describes the shape of the long run average total cost curve. If LRATC rises proportionately less than output, the firm is said to have economies of scale. The LRATC slopes downward. In other words, each additional unit of output costs it less than the prior one. In this case, the ...
Solution Summary
How economies of scale determines the shape of the long run average total cost curve
Production Costs
Problem:
a.Given the following chart and information fill in the missing values.
Output TFC TVC TC MC AFC AVC ATC
0 $2,000 --
50 100
100 80
150 60
200 50
250 60
300 85
350 125
b. Please graph your results. Draw both the average and total cases making sure to explain these important relationships or trends in the curves:
In the AVG Cost Curves:
i) Shape of AVC as Q increase
ii) AVC and ATC and Q increases
iii) U-shape of AVC and ATC
In Total Cost Curves
i) Shape of TFC, TVC/TC
ii) TC and TVC as Q increases (note: TC = TVC + TFC  this tells you something about distance between the two curves)
c. In a typical LRAC curve like the illustration below, explain economies and diseconomies of scales as well as constant returns to scale. Make sure to use the graph and explain the concept.
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