Consideration of the Minimum Efficient Scale of Operation Would Suggest

question 78

True/False

Consideration of the minimum efficient scale of operation would suggest that,to minimize production costs,the market should be served by a large number of small firms when the LRAC curve slopes downward over the relevant range of output.

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Definitions:

Fixed Costs

Costs that do not vary with the level of production or sales, such as rent, salaries, and insurance, remaining constant regardless of the business activity.

AVC

Average Variable Cost is the total variable costs divided by the quantity of output, representing the variable cost per unit of output.

MC = MR

An economic principle stating that to maximize profits, firms should produce up to the point where marginal cost equals marginal revenue.

MC = MR

The principle that profit maximization occurs when a firm's marginal cost (MC) equals its marginal revenue (MR).