The relationship between economies of scale, diseconomies of scale and the shape of the long-run average cost curve
As a firm grows, its cost per unit first falls, then eventually rises. These two forces — economies and diseconomies of scale — give the long-run average cost curve its distinctive U-shape.
Formula
LRAC = LRTC ÷ Q
Real World
Boeing's LRAC curve shows the U-shape in practice: early production of the 787 Dreamliner had very high unit costs, which fell sharply with scale, before rising again as supply-chain complexity caused costly delays and rework.
Exam Focus
When drawing the LRAC curve, label the MES point explicitly and annotate each phase — diagrams without labels rarely score full marks.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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