Question

The diagram shows the short-run average total cost curves for five different plant sizes of a firm. The shape of each individual curve reflects economies of scale, followed by diseconomies of scale. constant costs increasing costs, followed by decreasing costs. increasing returns, followed by diminishing returns

Answer 1

The short-run average total cost curves show economies of scale followed by diseconomies of scale.

Step-by-step explanation:

The diagram shows the short-run average total cost curves for different plant sizes. The shape of each individual curve reflects economies of scale, followed by diseconomies of scale.

This means that as the firm increases its plant size and output, its average total costs initially decrease due to the benefits of economies of scale. However, beyond a certain point, the firm experiences diseconomies of scale, causing the average total costs to increase.

This is an important concept in economics as it helps firms understand the optimal scale of production for cost efficiency.