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How can the long-run average cost (LRAC) curve be derived from the short-run average total cost...

  • How can the long-run average cost (LRAC) curve be derived from the short-run average total cost (SRATC) curve?
  • Describe economies of scale and diseconomies of scale.
  • What are the determinants of economies of scale and diseconomies of scale, respectively?
  • Using a real-world company (other than Sysco), explain the causes of economies of scale for your company.
  • How would economies of scale help your company compete in its industry?
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Answer #1

Answer 1 - The long run average cost curve is the combination of various short run average cost curves. The LRAC curve is the U shaped curve which is derived by joining the minimum points of the SRAC curves leading to the Bowl shaped structure of LRAC curve.

2 - When the LRAC decline as a result of increase in the output , this is called the economies of scale and are the result of the greater efficiency in the operations.

When the Output is falling and the LRAC is rising , this denotes that the increased input is leading to the decrease in output. This is called the diseconomies of scale. This arise due to the inefficiencies in operstion , obsolete technology etc.

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