True or False. The U shape of the long-run ATC curve is the result of diminishing returns.

Here is the full solution including the answer and explanation.

Explanation
"True" is incorrect
"False" is correct
The diminishing returns to scale do not define the U-shape of the long-run average total cost curve. This is because the diminishing returns only apply in the short run, which is different from the long run economics concepts. In the short run, some of the factors of production are held constant such as the capital, while the long-run period is one in which the firm gets enough time to alter the entire plant size. The diminishing returns to factors come into play when one factor is held constant and so only belongs to the short run. It cannot occur in the long run, since the firm would have the capacity to change all the factors.

The long-run ATC curve is U-shaped owing to the economies and diseconomies of scale. Economies of scale are known as the cost advantages in the production process, which means as a firm increases the output produced, the average total costs decline, as a result of which the long-run ATC curve tends to declines. Diseconomies of scale are known as the cost disadvantages, which means as firms increase the output produced, the average total cost keeps on rising, which leads to a rising long-run ATC curve. The shape of the long-run ATC curve is U-shaped because the firm faces economics of scale in the initial stage when factor specialization and capital efficiency occur and experiences diseconomies of scale afterward.