why is average cost curves u-shaped in the long run and short run

Asked on by cmuuchili

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gbeckstrom | High School Teacher | (Level 1) Adjunct Educator

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Average cost slopes down when quantities are lower because of increasing efficiency generated when workers (variable inputs) are able to specialize and become more productive.  As quantities continue to increase, there are no new processes to specialize and the law of diminishing marginal returns starts to set in (you can think of this as too many cooks in the kitchen; too many variable inputs to be fully utilized by the fixed inputs)

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