In the text, we stated that the LRAC curve initially slopes downward because of economies of scale. In the previous chapter we saw that the SRATC curve can initially slope downward because of spreading overhead.
a. Explain the difference between economies of scale and spreading overhead. Why is one a short-run concept and the other a long-run concept?
b. Draw a diagram with short-run and long-run average cost curves that illustrates for the same level of output both economies of scale and spreading overhead.