Define economies of scale

Reference no: EM133516148

Assignment:

Assume that a firm uses capital as a fixed factor of production and uses labor as a variable factor. The marginal product of labor at first increases and then decreases with the amount of labor.

(a) Using a correctly labeled graph, draw and identify the form's average total cost curve (ATC), average variable cost curve (AVC), and marginal cost curve (MC).

(b) Given your graph in part (a), answer each of the following.

(i) Why is the MC shaped as it is?

(ii) What does the difference between the AVC and the ATC represent?

(d) Draw a long-run average total cost curve that has a region of economies of scale followed by a region of diseconomies of scale, as output increases.

Reference no: EM133516148

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