Sources of Increasing Long-Run Costs
A large furniture factory and a small artisanal workshop both experience rising long-run average costs as they significantly expand production. The factory's rising costs are primarily due to the challenges of managing a vast workforce and complex internal logistics. The workshop's rising costs are mainly because its increased demand for a rare, specialized type of wood drives up the price from its limited suppliers. For each business, identify whether the primary source of its increasing long-run average cost is due to the production technology itself or due to changes in input prices, and briefly justify your answer.
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A firm experiences economies of scale solely because, as it grows larger, it can negotiate lower prices for its raw materials when buying in bulk.
A software company observes that its long-run average cost of developing a new feature initially decreases as it hires more developers, but eventually begins to increase after the company grows very large. Which statement best analyzes the underlying causes for this U-shaped cost curve?
A company's long-run average cost can decrease as it increases its scale of production for different reasons. Which of the following scenarios describes a decrease in long-run average cost due to a pecuniary economy rather than a technological economy of scale?
Sources of Increasing Long-Run Costs