Question

Can you assess the shape of the long-run average cost curve of your organization? on the basic of your knowledge of your clothing firm and the returns to scale it is experiencing , what do You think the curve looks like and why?

Answer 1

The long run average cost of the organisation is a U shaped curve with a minimum point as shown in the figure with average total cost decreasing to an extent and then increasing

With the knowledge of a basic clothing firm, it is U shaped curve where initially there are increasing returns to scale as you maximise production because the average cost is reached but when the maximum capacity is reached, high machinery is further required increasing the average cost with which then there would be decreasing returns to scale.