Question

2. Consider the table below, which provides total cost in the long run for each level of output and the average cost.

Total product	Total cost	Average cost
100	487	4.87
125	595	4.76
150	705	4.70
200	930	4.65
250	1155	4.62
300	1380	4.60
400	1840	4.60
450	2079	4.62
500	2322	4.64

  Using a relevant economic concept, describe the patterns observed in the data for long-run average cost. Give a very brief explanation of your answer.

Answer 1

In economics we have a concept called economies of scale. It is a long run concept.

Economies of scale refers to a situation when there is an fall in long run average cost as there is an increase in output production.

Opposite to that, there is a term called diseconomies of scale, it is occurs when there is an increase in long run average cost as there is an increase in output production.

If the long run average cost is constant as an invincre in output production then there is a constant return to scale.

From the given table, we can conclude that till the 250 units of output production there is economies of scale.

From 300 to 400 units of production, there is constant return to scale

From 450 to 500 units of production, there is diseconomies of scale.