Explain Why the Long-Run Average Cost Is Typically U Shaped

question 130

Essay

Explain why the long-run average cost is typically U shaped.

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Definitions:

Corporate Tax Rate

The proportion of a company's profits that is owed to the government as tax.

Fixed Costs

Costs that do not change with the level of production or sales, such as rent, salaries, and loan payments.

Operating Leverage

A measure of how sensitive a company's operating income is to changes in revenue, indicating the degree of fixed versus variable costs.