The correct answer is: C. Long-run average total cost curve is typically U-shaped.
Economies of scale are the cost advantages that a company gains due to increased production. These advantages can be due to factors such as specialization, division of labor, and learning by doing. As a company produces more, it can spread its fixed costs over a larger number of units, which lowers its average cost per unit.
Diseconomies of scale are the cost disadvantages that a company faces as it increases its production. These disadvantages can be due to factors such as managerial diseconomies, coordination problems, and increased bureaucracy. As a company produces more, it can become more difficult to manage and coordinate its operations, which can lead to higher costs.
The long-run average total cost curve (LRATC) is a graph that shows the relationship between a company’s average total cost and its output in the long run. The LRATC curve is typically U-shaped, which means that it has a downward-sloping portion at low levels of output, a horizontal portion at the minimum point of the curve, and an upward-sloping portion at high levels of output.
The downward-sloping portion of the LRATC curve is due to economies of scale. As a company produces more, it can spread its fixed costs over a larger number of units, which lowers its average cost per unit.
The horizontal portion of the LRATC curve is due to constant returns to scale. At this point, the company is able to produce additional output without increasing its average cost per unit.
The upward-sloping portion of the LRATC curve is due to diseconomies of scale. As a company produces more, it can become more difficult to manage and coordinate its operations, which can lead to higher costs.
The economies and diseconomies of scale explain why the LRATC curve is typically U-shaped. At low levels of output, the company experiences economies of scale, which causes the LRATC curve to slope downward. As the company produces more, it reaches a point where it experiences constant returns to scale, which causes the LRATC curve to become horizontal. At high levels of output, the company experiences diseconomies of scale, which causes the LRATC curve to slope upward.