Comment on the following statement: "The shape of the long-run average cost curve is determined by diminishing returns."

What will be an ideal response?

The statement is false. Diminishing returns occurs in the short run, as the firm adds units of a variable input to a fixed input. In the long run, there are no fixed inputs. The shape of the long-run average cost curve depends on how costs are affected by changes in the firm's scale of production.

Economics

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A tax on gasoline is likely to

a. cause a greater deadweight loss in the long run when compared to the short run. b. cause a greater deadweight loss in the short run when compared to the long run. c. generate a deadweight loss that is unaffected by the time period over which it is measured. d. none of the above is correct.

Economics

Which of the following is a reason why increases in the price level result in a decline in aggregate expenditure?

A) Price level increases in the United States relative to other countries raise net exports, which lowers aggregate expenditure. B) As the price level rises, government spending falls, which lowers aggregate expenditure. C) Price level increases cause firms and consumers to hold more money, which raises the interest rate. Higher interest rates lower consumption and planned investment expenditures, which lowers aggregate expenditure. D) Price level increases raise real wealth, which causes consumption spending and aggregate expenditure to decline.

Economics