In terms of minimum efficient scale of output, the “unit cost curve” r

QUESTION

In terms of minimum efficient scale of output, the “unit cost curve” rises with output until a certain output level is reached, at which point further increases in output realize little reduction in unit costs.

Indicate whether the statement is true or false.

ANSWER

FALSE
The concept of economies of scale tells us that as plant output expands, unit costs decrease. The reasons include the greater utilization of capital equipment and the productivity gains that come with specialization of employees within the plant. However, beyond a certain level of output, few additional scale economies are available. Thus, the “unit cost curve” declines with output until a certain output level is reached, at which point further increases in output realize little reduction in unit costs.