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JAMB Economics 1992 Question 13

Question 13

Theory of Costs and Revenue

The U-shape of the long run average cost curve can be explained by the

  1. A.law of increasing returns
  2. B.law of constant returns
  3. C.law of diminishing returns
  4. D.concepts of economies and diseconomies of scale
Show the answer and explanation

Answer: D (concepts of economies and diseconomies of scale)

Explanation

In the long run all inputs vary; LRAC falls at first because of economies of scale and later rises because of diseconomies of scale.