Question
What do the long run marginal cost and the average cost curves look like?
✓
Answer
The long run marginal cost (LMC) and long run average cost (LAC) are $U$ shaped curves. The reason behind them being U -shaped is due to the law of returns to scale. It is argued that a firm generally experiences IRS during the initial period of production followed by CRS, and lastly by DRS. Consequently, both LAC and LMC are U-shaped curves. Due to IRS, as the output increases, LAC falls due to economies of scale. Then falling LAC experiences CRS at Q1 level of output which is also called the optimum capacity. Beyond $Q_1$ level of output, the firm experiences diseconomies of scale and if the firm continues to produce beyond $Q_1$ level, the cost of production will rise.
Need a full question paper?
Generate a complete, print-ready paper with questions like this in minutes — across 16+ boards, with answer keys.
Explore more
Similar questions
Suppose that the demand curve for the XYZ company slopes downward and to the right. Would you conclude that the firm is a price taker or a price maker? Give reasons.
From the following schedules, calculate the price elasticity of supply:
| Price per unit(₹) | Quantity Supplied |
| 2 | 40 |
| 3 | 60 |
State three features of perfect competition.
Price Elasticity of Demand of a good is (-) 0.75. Calculate the percentage fall in its price that will result in 15% rise in its demand.
What is revenue of a firm? Give meaning of average revenue and marginal revenue. What happens to average revenue when marginal revenue is:
- Greater than average revenue.
- Equal to average revenue.
- Less than average revenue?
When price of a good is ₹ $12$ per unit, the consumer buys $24$ units of that good. When price rises to ₹ $14$ per unit, the consumer buys $20$ units. Calculate Price Elasticity of Demand.
→What is the total product of an input?
In order to encourage tourism in Goa, Indian Airlines reduces the air fare to Goa. How will it affect market demand curve for air travel to Goa?
A firm can sell as many units of a good as it wants to sell at a given price. Prepare a schedule showing Total Revenue, Average Revenue and Marginal Revenue of such a firm.
Define MRS. Explain why an Indifference curve is convex.