Suppose Handel's Ice Cream experiences economies of scale up to a certain point and diseconomies of scale beyond that point. Its long-run average cost curve is most likely to be ?
Correct answer: B. U-shaped
- A. downward sloping to the right
- B. U-shaped
- C. Horizontal
- D. upward sloping to the right
Explanation
Economies of scale reduce long-run average cost as output expands, while diseconomies increase it beyond the efficient scale. The resulting long-run average cost curve is therefore U-shaped.
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Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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