Question

In the long run a company that produces and sells popcorn incurs total costs of $1,050 when output is 90 canisters and $1,200 when output is 120 canisters. The popcorn company exhibits

Answer 1

Economies Of Scale

Step-by-step explanation:

Average total cost(ATC) refers to total cost incurred per unit of output produced.

ATC at level of 90 canisters = $1050/90 canisters = $ 11.67 per canister

ATC at level of 120 canisters= $1200/120 canisters = $10 per canister

As can be seen, the average total cost has reduced.

Economies of scale is defined as the phenomena when in the long run, average total cost reduces along with an increase in the output.

The reasons attributable to this phenomena being, increase in labor efficiency and better utilization of resources coupled with bulk quantity of inputs purchased at a lower cost, which lowers the cost of production in the long run.