March 29, 2017

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Hi, please help me with this econs question! thanks!

I'm asked to sketch the average and marginal cost curves of a software company, in which when it first starts up, the costs are extremely high. (High start up costs, millions of dollar spent to make the software)But after it has made the software, the costs in distributing it to customers "entails low incremental costs that is virtually zero".

So should the MC and AC curves be U shaped or can they simply be sloping downwards because of the economies of scale? How should the curve look like?

Please help! thanks! i've looked through my textbook and i still feel very confused.

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