If Handel's Ice Cream encounters economies of scale up to a threshold and diseconomies beyond it, what shape does its long-run average cost curve take?
Show answer Hide answer
Answer: B. U-shaped
Explanation
Economies of scale initially decrease long-run average costs as production output expands from lower initial levels. Subsequent diseconomies of scale eventually cause long-run average costs to rise as firms become excessively large. Combining falling costs followed by rising costs creates a characteristic U-shape for the long-run average cost curve. Plant efficiencies, specialization, and bulk purchasing power generate downward sloping cost behavior at lower output levels. Managerial inefficiencies, communication breakdowns, and coordination difficulties drive upward cost behavior at higher output scales. The minimum efficient scale point represents the lowest production level where long-run average costs are minimized.
Option A describes a cost curve where economies of scale persist indefinitely without ever encountering diseconomies. Option C describes constant returns to scale where average costs remain completely unchanged across output levels. Option D describes a situation featuring only diseconomies of scale from the very beginning of production.
Related questions
Q1. The recorded financial valuation of a corporate asset on balance sheets may differ from its prevailing open market value; what is this recorded figure termed ?
Show answer Hide answer
Answer: B. Book value
Book value represents the historical recorded financial cost of an asset minus accumulated depreciation on balance sheets. Accounting standards require companies to record assets at original purchase price rather than fl...
Q2. What functions are shared by the Bank of England and the Federal Reserve?
Show answer Hide answer
Answer: A. are central banks
The Bank of England and the Federal Reserve both operate as national central banking institutions. Both organizations manage national monetary policy and regulate domestic commercial banking systems. Neither institution...
Q3. What does the balance of payments represent?
Show answer Hide answer
Answer: A. Balance between a nation’s expenditure on imports and its receipts from exports
The balance of payments tracks all economic transactions between a country and the rest of the world, including exports and imports of goods, services, and assets.
Q4. What financial transactions are tracked by the balance of trade?
Show answer Hide answer
Answer: D. the value of merchandise exports minus imports
The balance of trade strictly calculates the net monetary difference between merchandise exports and merchandise imports. Physical goods shipped abroad generate export revenue while physical foreign goods entering the co...
Q5. What does the balance on current account measure?
Show answer Hide answer
Answer: C. I and IV only
The current account balance measures international trade in goods and services between countries. It also tracks net income from foreign investments and net unilateral current transfer payments. These specific components...
Q6. All of the following fuels derive from organic materials except which one?
Show answer Hide answer
Answer: D. Uranium
Uranium is a heavy radioactive metallic chemical element mined directly from geological mineral deposits underground. Unlike fossil fuels, uranium does not originate from the decomposed remains of ancient plants and anim...