What is the shape of average cost curve? Provide the reason for that particular shape
Average cost curve is roughly 'U' shaped.
It has two reasons. Average cost includes average fixed costs and average variable costs. The first reason pertains to the fixed cost as fixed costs are divided over more products when production expands average cost falls. The second reason relates to changing input proportions. As the firm increases the quantity of one input while keeping other inputs constant, the law of diminishing marginal returns tells us that MPP will first rise. As a result, average costs will decrease. Average cost will increase when the size of the firm increases.
You might also like to view...
Points below a firm's total product curve are
A) both attainable and technologically efficient. B) neither attainable nor technologically efficient. C) attainable but not technologically efficient. D) technologically efficient but not attainable.
Critics of the Federal Reserve maintain that, to correct the credibility problem of monetary policy, the Fed should:
a. tighten monetary policy. b. be required to maintain a growth rate of the money supply that is fixed by law. c. give more power to the Federal Open Market Committee. d. ignore public opinion and establish more discretionary power over monetary policy. e. merge with the U.S. Treasury and be dissolved as an independent agency.