The rising portion of the long-run average cost curve of a firm is an indication that it is experiencing?

A. increasing efficiency
B. economies of scale
C. diseconomies of scale
D. increasing marginal returns

Correct Answer:

Option C – diseconomies of scale

Explanation

The long-run average cost (LRAC) curve shows the firm’s lowest cost per unit at each level of output, assuming that all factors of production are variable.

As long as the LRAC curve is declining, then internal economies of scale are being exploited. If LRAC is falling when output is increasing, then the firm is experiencing economies of scale. If it is rising, it means the firm is experiencing diseconomies of scale.