Why the Long-Run Average Curve Is U Shaped? and Why the Short Cost Curve Is U Shaped?

The long run average personify wrench is explained by the economies of collection plate, and diseconomies of scale. It explains why LRAC goes down, and then goes up.As bring back increases, there are ii basic influences at work: Economies of scale, and Diminishing marginal returns.Economies of scale cause average damage to decrease as return increases.Diminishing marginal returns causes average damage to increase as labor increases. If Economies of scale outweighs diminishing marginal returns at low volumes, and in conclusion diminishing marginal returns outweighs economies of scale at high volumes the curve will be a U shape. A veritable(prenominal) average cost curve will have a U-shape, because firm be are all incurred before either production takes place and marginal cost are typically increasing, because of diminishing marginal productivity.There is an indication of economies of scale if marginal costs are below average costs and average costs decreasing as measuring increase. An increasing marginal cost curve will intersect a U-shaped average cost curve at its minimum, after which point the average cost curve begins to slope upward. This is indicative of diseconomies of scale. For further increases in production beyond this minimum, marginal cost is above average costs, so average costs are increasing as quantity increases.




As for the short run average cost curve, ab initio it is worth producing more, as you are making use of the fixed resource(e.g., reezit machine). however, as the law of diminishing return sets in, it is more costly to produce the extra unit of output.In the short term, there is at least one fixed unit of input that cannot be changed, and because of that, the law of diminishing return applies, saying that as you append successive units of labour into a fixed input, the marginal return diminishes over time. For example, if one has 5 freezit making machines (fixed input), then by hiring 5 workers he could probably produce 10 outputs. However, as he increases his labour,...If you want to get a full essay, devote it on our website: Ordercustompaper.com



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