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Question
LRAC curve's upward rising part corresponds to_____.
LRAC curve's upward rising part corresponds to_____.
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Solution
The correct option is A DRS
If the firm tries to expand more than its optimal point, the firm experiences decreasing returns to scale and average cost increases. During this the firm's LRAC will slope upwards. The main reason for increasing average costs is that the firm is experiencing diseconomies of scale, which include chaotic mismanagement and miscommunication due to the firm growing beyond optimality.
If the firm tries to expand more than its optimal point, the firm experiences decreasing returns to scale and average cost increases. During this the firm's LRAC will slope upwards. The main reason for increasing average costs is that the firm is experiencing diseconomies of scale, which include chaotic mismanagement and miscommunication due to the firm growing beyond optimality.
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