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Economics (AS & A Level) · Oct / Nov 2022 · Paper 32 · Question 8

9708Types of cost, revenue and profit, short-run and long-run production

The diagram shows short-run average cost curves (SRAC) and the long-run average cost curve (LRAC) for a firm. Which statement is correct?

  1. AWhen each of the three SRAC curves is U-shaped it shows the existence of economies of scale.
  2. BWhen the LRAC curve is upward-sloping beyond output OQ it shows the existence of diseconomies of scale.
  3. CWhen the minimum point of SRAC2 is below that of SRAC1 it shows the existence of the law of variable proportions.
  4. DWhen the minimum point of SRAC2 is below that of SRAC3 it shows the existence of economies of scale.

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Correct answer: B. When the LRAC curve is upward-sloping beyond output OQ it shows the existence of diseconomies of scale.

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