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In the real world, most firms are operationg in the Diseconomies of Scale portion of the...

In the real world, most firms are operationg in the Diseconomies of Scale portion of the LRATC - what does this mean?

  • 1-The long-run supply curve is upward sloping.  

  • 2-As the industry expands production and as more firms enter the industry, then logically they will be competiing for the inputs (i.e. talented labor, raw materials) that are necessary for production.  

  • 3-As new firms enter the industry, they will bid up the input resource prices (e.g. talented labor, materials) and will therefore increase the per-unit costs.   

  • 4-All statements listed are true and correct.

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Answer #1

Answer : The answer is option 3.

In long-run many firms enter into the market. As a result, the demand for resources increase which increase the input price level. This increase the per-unit cost of production in long-run. When long-run per-unit cost of production increase then the firm face a situation of dis-economies of scale. Therefore, option 3 is correct.

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