What is the shape of average cost curve? Provide the reason for that particular shape


Average cost curve is roughly 'U' shaped.

It has two reasons. Average cost includes average fixed costs and average variable costs. The first reason pertains to the fixed cost as fixed costs are divided over more products when production expands average cost falls. The second reason relates to changing input proportions. As the firm increases the quantity of one input while keeping other inputs constant, the law of diminishing marginal returns tells us that MPP will first rise. As a result, average costs will decrease. Average cost will increase when the size of the firm increases.

Economics

You might also like to view...

Refer to Figure 4.2. The game described in the payoff matrix is an example of a(n) ________ game

A) prisoner's dilemma B) pure coordination C) assurance D) battle of the sexes

Economics

Robert Lucas has popularized the notion that with respect to

A) severity, business cycles are all alike. B) causation, business cycles are all alike. C) quantitative behavior of co-movements among series, business cycles are all alike. D) qualitative behavior of co-movements among series, business cycles are all alike.

Economics

Typically, economists expect oligopolistic behavior on the part of the firms when the four-firm concentration ratio is ______ or higher

a. 10 percent b. 25 percent c. 40 percent d. 60 percent e. 90 percent

Economics

Which of the following is not a basic measure of macroeconomic performance?

A. Output growth B. Unemployment C. Public goods D. Inflation

Economics