Chapter 10R, Problem 19MCQ

To determine

The correct option for given situation where average total cost curve slopes upward.

Answer to Problem 19MCQ

Option c, option d and option e are correct.

Explanation of Solution

Explanation for correct option:

c.

When there are diseconomies of scale, the average total cost increases. This happens due to the increase in cost of producing additional units. Therefore, option c is correct.

d.

Due to overcrowding of the fixed factor of production, average total cost increases in long run. This happens because overcrowding of fixed factor of production leads to diseconomies of scale. Therefore, option d is correct.

e.

Due to diminishing marginal returns the total average cost will increases if production unit is added after achieving maximum capacity of the production factor. The average total cost curve will slope upward. Therefore, option e is also correct.

Explanation for incorrect options:

a.

If economies of scale occur then the average total cost declines which results in downward sloping cost curve instead of upward sloping. Therefore, option a is incorrect.

b.

Economies of scope refer to the increase in variety of product lines which reduces the average total cost of producing additional units. If economies of scope are achieved then the average total cost reduces and curve will be downward slope. Therefore, option b is incorrect.

Economics Concept Introduction

Average total cost: Average total cost of production per unit is comprised of two cost components that is average fixed cost and average variable cost. In short-run, fixed cost of the production remains similar.