Assertion A): U-shaped long-run average cost curve is based on the assumption that economies of scale prevails at small levels of production and diseconomies of scale prevails at larger level of production.
Reason R): Decreasing returns to scale arises primarily because as the scale of operation increases, it becomes even more difficult to manage the firm effectively.
In the context of the above two statements, which one of the following codes is correct?
1
Both A) and R) are correct and R) is the right explanation of A)
2
Both A) and R) are correct and R) is not the right explanation of A)
3
A) is correct and R) is not incorrect
4
Both A) and R) are incorrect