Question

Use the concepts of economies or diseconomies of scale to explain the shape of a firm’s long-run ATC curve.

Answer 1

Economies of scale is a situation when the total cost of the production decrease as the production of the good increase and dis economies of scale is a situation when the cost of production increases as the firm produces more and more goods.

Economies of scale leads to a downward sloping ATC curve. i.e. as the firm is increasing the production the cost of production is decreasing that lead to a slope in the curve.

Diseconomies of scale will lead to a upward sloping ATC curve because as the firm is increasing the production the cost of production is increasing. The ATC will slope upward in the long run.