Question

Long-run average total costs curves are often U-shaped:

A: For the same reasons that average total cost curces are often U-shaped.

B: Because of constant returns to scales.

C: Because of increasing coordination problems at low levels of production and increasing specailization of workers at high levels of production

D: Because of increasing specialization of workers at low levels of production and increasing coordination problems at high levels of production.

I know B is not the answer. C and D don't seem to be right either. I picked A.

Answer 1

A doesnt make sense, and, as you surmised, B and C are incorrect. Go with D. At low levels, increase specialization can improve productivity and thus lower costs. However, at higher levels of output, coordination becomes a major issue, and average productivity falls. (Other reasons too can also explain the U shape).