A student has just written on an exam that, in the long run, fixed cost will make the average total cost curve slope downward. Why will the professor mark it incorrect? In the long run, fixed cost increases as firms build new plants and purchase new capital. This means that the average total cost curve will eventually slope upward. In the long run, firms have no fixed cost—all costs would be variable. The shape of the long-run average total cost curve is determined by economies of scale. In the long run, fixed cost decreases as costs are spread out over a greater quantity of output. Declining fixed cost accounts for the downward-sloping average total cost curve. In the long run, there are no fixed costs, meaning the average total cost curve shifts down.
A student has just written on an exam that, in the long run, fixed cost will make the average total cost curve slope downward. Why will the professor mark it incorrect? In the long run, fixed cost increases as firms build new plants and purchase new capital. This means that the average total cost curve will eventually slope upward. In the long run, firms have no fixed cost—all costs would be variable. The shape of the long-run average total cost curve is determined by economies of scale. In the long run, fixed cost decreases as costs are spread out over a greater quantity of output. Declining fixed cost accounts for the downward-sloping average total cost curve. In the long run, there are no fixed costs, meaning the average total cost curve shifts down.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
A student has just written on an exam that, in the long run, fixed cost will make the average total cost curve slope downward. Why will the professor mark it incorrect?
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In the long run, fixed cost increases as firms build new plants and purchase new capital. This means that the average total cost curve will eventually slope upward.
-
In the long run, firms have no fixed cost—all costs would be variable. The shape of the long-run average total cost curve is determined by economies of scale.
-
In the long run, fixed cost decreases as costs are spread out over a greater quantity of output. Declining fixed cost accounts for the downward-sloping average total cost curve.
-
In the long run, there are no fixed costs, meaning the average total cost curve shifts down.
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