Question

4-c. Explain how the long run ATC curve is derived and how understanding that concept might help a business manager make better decisions.

Consider two things:

1) The definition of ATC

2) How would one should approach deriving the LR ATC. It might help to draw a picture.

d. Explain economies of scale, constant returns to scale, and dis-economies of scale and why understanding those concepts might help a business manager improve their decision-making.

Answer 1

Answer:-

4 (C).Each short-run ATC is constructed, and when the quantity of the fixed input changes, the short-run ATC shifts to a new location. The long-run ATC can be constructed the quantity of output that is produced at each level of short-run ATC curves. Managers can come to know about the economies of scale of production with the help long-run ATC curves. They can initially recognize the economies of scale when more output are produced at lower costs, thereafter a constant returns to scale. Beyond which they can recognize the impact of cost on the production process. This can help to sustain business growth while managing the economies of scale in all possible ways.

1) The long-run average total cost curve is the summation of an infinite number of short-run average total cost curves with each short-run ATC tangent to the long-run ATC at a single point corresponding to a single output quantity.

2) Graph: Long-run Average Total Cost Curve