Long-run costs and economies of scale

Learning objectives

Explain why the long-run average total cost curve is the envelope of the short-run average total cost curves

Distinguish economies of scale, constant returns to scale and diseconomies of scale and give causes of each

Identify the minimum efficient scale on a long-run average cost curve and explain what it implies for the number of firms an industry can support

Explain how returns to scale in the long run differ from diminishing marginal returns in the short run