Question

Economies of scale are indicated by:

A. the rising segment of the average variable cost curve.
B. the declining segment of the long-run average total cost curve.
C. the difference between total revenue and total cost.
D. a rising marginal cost curve.

Answer 1

Economies of scale are represented by a declining segment on the long-run average total cost curve, where production expansion leads to lower average costs, unlike the short-run cost curve which includes fixed costs and emphasizes diminishing marginal returns.

Step-by-step explanation:

Economies of scale are indicated by the declining segment of the long-run average total cost curve. When all factors of production are allowed to change, larger scale leads to lower average costs. In the context of the long-run average cost curve, economies of scale occur as production expands, which results in average costs decreasing. This is opposed to the short-run average cost curve, which assumes fixed costs and accounts for diminishing marginal returns - a scenario where marginal costs increase as production expands but only one input, like labor, is increasing while others, like capital, are fixed. Therefore, the answer to the student's question is B. the declining segment of the long-run average total cost curve.