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when might advertising reduce the average cost of production?

when might advertising reduce the average cost of production?
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Answer #1

If advertising is successful and effective, it will increase demand for the product. Assuming the firm can meet higher demand, production and output will increase. Since

Average cost (AC) = Total cost (TC) / Output,

Higher output will decrease AC, assuming fixed cost and average variable costs stay the same.

Another explanation is economies of scale. If the firm enjoys economies of scale in the relevant region, higher output will decrease AC as per the downward sloping AC curve.

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