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30 May 2019

A. What is the relationship between a firm’s total revenue, profit, and total cost?

B. Define economies of scale and explain why they might arise. Define diseconomies of scale and why they might arise.

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Elin Hessel
Elin HesselLv2
31 May 2019

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Principles of Economics
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Related questions

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?

Use the long-run average total cost (LRATC) curve below to answer the 3 multiple choice questions.

As the firm moves from point A toward point B, they are experiencing: 

a. constant returns to scale. 

b. diseconomies of scale. 

c. economies of scale. 

 

As the firm moves from point B toward point C, they are experiencing:

a. constant returns to scale. 

b. diseconomies of scale. 

c. economies of scale. 

 

As the firm moves from point C toward point D, they experiencing:

a. constant returns to scale. 

b. diseconomies of scale. 

c. economies of scale. 

1. Explain the difference between external and internal economies of scale. How does one arise compared to the other? Provide a real-world example of an industry/firm that exhibits each type of economies of scale and how they achieved it.

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