This is a graph of our firm’s costs. Label the lines on the graph using the following labels: average fixed cost (AFC), average variable cost (AVC), average total cost (ATC) and marginal cost (MC). Then label the shut down and breakeven points on the graph. The accountants claim that we are at our profit maximizing point. You decide to investigate potential diseconomies of scale. What diseconomies of scale do you think you might find? How could these be addressed and hopefully decrease costs? (20 points) The graph is a line chart showing the relationship between Quantity (in millions) on the x-axis and Cost (in millions) on the y-axis. It includes four lines, each representing a different cost function.1. **Gray Line**: Starts at approximately (0.5, 6) and declines steeply, passing through points (2, 3.5), (4, 2.5), and approaching (6.5, 4). This line appears to represent a cost curve that decreases initially and then increases.2. **Blue Line**: Begins at about (0.5, 4.5), decreasing steadily through points like (2, 3), flattening out slightly near (5, 1), and finishes around (7, 0.5). This line indicates a consistent decline in cost as quantity increases.3. **Orange Line**: Starts at roughly (0.5, 2.5), slope decreasing to reach a low at about (3.5, 1), and then ascending to about (7, 2.5). This line shows a U-shaped cost curve reflecting decreasing then increasing costs.4. **Yellow Line**: Begins at (0.5, 5.5), drops sharply to a low around (3.5, 0.5), after which it rises steeply, finishing near (6.5, 6). This cost curve reflects a sharp decline followed by a sharp rise in costs.Overall, the graph illustrates different cost behaviors depending on the quantity, with each line representing different types of cost curves, such as decreasing, U-shaped, and steep decrease and increase.

Cost of production is those costs which are incurred by the manufacturer for manufacturing the product or providing the service to the consumer. Broadly these costs are classified under three heads: Fixed cost- Variable cost Total costThe following properties of the cost curves are used to label the curves The curve in blue color is constantly declining which is the property of the average fixed cost. The two curves having almost similar slopes are AVC and ATC. The one which is lowest (orange color) will be the AVC and the other will be ATC (grey color) The curve has a U-shaped image (yellow line) will be the MC curve because of the law of variable proportion The point where the AVC curve and the MC curve intersect will be the shutdown point because the shutdown point is when MR and AVC are equal and at equilibrium MC and MR are also equal. Taking MC as MR (explained in D), the point where MC and ATC intersect will be the break-even point. The following is the labeled graph 1:In the case of perfect competition, the profit is maximum when the marginal cost and the demand (Price) are equal. In the long run the MC and ATC interests at this point. Since in the graph the ATC and MC intersect at the break-even point, therefore the break-even point is the same as the profit maximization point (labeled as A in graph 2) The diseconomies of scale are told by the average cost curve. The minimum point of the AVC separates the economies and diseconomies of scale. In graph 2, point B is labeled as the minimum point. In the following ways the diseconomies of scale will be handled: Keeping an eye on the Average cost because a higher AC will lead to diseconomies Lower the level of business diversification as it will remove coordination as a hindrance. Splitting the organization into various small segments Using the method of decentralization for the working of the organization.