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The law of (diminishing or increasing) returns determines the shape of all cost curves: marginal, average, and total. In the short run, diminishing return, technology results in a U-shaped AC curve. What is the main implication on the firm with U-shaped AC curve? Moreover, from EAT ch 5, what should be the shape of AC and MC in the short run? Why? Please specifically explain.

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Romarie Khazandra Marijuan
Romarie Khazandra MarijuanLv10
28 Sep 2019
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Related questions

36) A firm encountering economies of scale over some range of output will have a:

a) rising long-run average cost curve.

b) falling long-run average cost curve.

c) constant long-run average cost curve.

d) rising, then falling, then rising long-run average cost curve.

37) When a firm doubles its inputs and finds that its output has more than doubled, this is known as:

a) economies of scale.

b) constant returns to scale.

c) diseconomies of scale.

d) a violation of the law of diminishing returns.

38) The larger the diameter of a natural gas pipeline, the lower is the average total cost of transmitting 1,000 cubic feet of gas 1,000 miles. This is an example of:

a) economies of scale.

b) normative economies.

c) diminishing marginal returns.

d) an increasing marginal product of labor.

39) If all resources used in the production of a product are increased by 20 percent and output increases by 20 percent, then there must be:

a) economies of scale.

b) constant returns to scale.

c) diseconomies of scale.

d) increasing the average total costs.

40) Economies and diseconomies of scale explain why the:

a) short-run average fixed cost curve declines so long as output increases.

b) marginal cost curve must intersect the minimum point of the firm's average total cost curve.

c) long-run average total cost curve is typically U-shaped.

d) short-run average variable cost curve is U-shaped.

Why does the short-run average total cost (ATC) curve of a firm tend to be U-shaped? 
 
a) larger firms always have lower per-unit costs than smaller firms.  
b) at low levels of output, AFC will be high, while at high levels of output MC will be high due to diminishing returns.
c) diminishing returns will be present when output is small, and high AFC will push per unit cost to higher levels when output is large.  
d) diseconomies of scale will be present at both small and large output rates. 

a) Explain why earning zero economic profit is not as bad as it sounds. b) What is the difference between the law of diminishing marginal returns and diseconomies of scale? Briefly explain what causes diseconomies of scale. c) Why is the Average Total Cost curve U-shaped? d) Explain why a firm might want to produce its good even after diminishing marginal returns have set in and marginal costs are rising. e) What economies of scale and economies of scope exist in (a) oil refining; (b) banking?

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