Asked by Tishera Brooks on May 12, 2024
Verified
When a firm has to increase its output,average total costs will increase in the short run and then decrease in the long run,after the firm has time to add physical capital.
Average Total Costs
The total cost of production divided by the number of units produced, representing the average cost per unit.
Physical Capital
Tangible assets used in the production of goods and services, such as machinery, buildings, and equipment.
Short Run
A period in economics during which at least one input is fixed while others are variable.
- Identify the differences in input variability between the short run and long run.
- Gain insight into how scale economies influence cost behavior over an extended period.
Verified Answer
NM
Nadia MirzaMay 16, 2024
Final Answer :
True
Explanation :
In the short run, increasing output can lead to diminishing marginal returns and higher variable costs, causing average total costs to increase. However, in the long run, the firm can add physical capital and potentially experience economies of scale, leading to lower average total costs.
Learning Objectives
- Identify the differences in input variability between the short run and long run.
- Gain insight into how scale economies influence cost behavior over an extended period.
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