Do you believe average variable costs and average fixed cost

Do you believe average variable costs and average fixed costs influence the shape of the long-run average total cost curve as well as the short-run average total costs curves? Please provide real-life examples in your response. Economies of scale is when a firm is able to decrease their per unit costs as production is increased. What is implied of firms that experience diseconomies of scale? Can you provide a real-life example of a firm that experiences diseconomies of scale? Please explain

Solution

Yes, Average variable cost and average fixed together determines the average total cost

Average total cost normally have similar shape as AVc but the ATC will always be greater than AVC and the gap between ATC and AVC becomes narrow as we imcrease Q because AFV decreases which is the gap between ATC and AVC.

Long run Average cost curve is found out by joining the short run minimum average cost curves.

Average cost curve is normally U shape. Thus during downturn of U shaped, firm experience economies of scale whereas during upturn firm experiences diseconomies of scale.

When an industry wants to produce more cars during peak season, company asked the workers to do overtime but they are less efdixient or marginal productivity of extra labor hour is less due to which average cost increases and firms experience diseconomies of scale.