Question

8. Explain briefly why advanced technology and specialization of labor force in the LR reduces the minimum efficiency of scale point of economies of scale. Does this scenario shift the LRATC curve downward or upward or stay the same? Give reasons by drawing a hypothetical diagram. op

Answer 1

LRAT C ATC LRATC Buant Ty X

The advanced technology and specialization of labor force will reduce the average cost of production for each unit of output produced because it increases the efficiency of the labor employed and also shifts the production function upwards. Thus, same unit of output can be produced at a lower cost than previously. This will shift the LRATC curve downwards as depicted in the above diagram to LRATC'. This downward shift of the LRATC curve will reduce the minimum efficiency of scale point of economies of scale in the production process.