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Answer :
Final answer:
An outward-bowed product transformation curve represents diseconomies of scale. This occurs when a firm gets so large that it becomes difficult to manage thus increasing costs. Economies of scale, occurring at lower output levels, reduces average costs as production increases.
Explanation:
When a product transformation curve (also known as production possibilities curve) is bowed outward, it signifies diseconomies of scale in production. Diseconomies of scale occur when a firm or factory grows too large that it becomes difficult to manage, resulting in high costs. This situation often leads to an increase in average cost per unit as output increases.
Economies of scale, on the other hand, illustrate a situation where as the scale of production increases, the average cost of production declines. This can occur up to a point - imagine a factory reaching its optimal output level of, say, 40,000 units; beyond this level, the factory cannot achieve lower costs per unit, it might even experience an increase in costs.
In simple terms, for economies of scale, a larger factory can produce at a lower average cost than a smaller one, up to a certain point. Beyond that point, the factory experiences diseconomies of scale, which represent the right-hand portion of the curve where it is bowed outwards.
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