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merrisara merrisara
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A year ago

The figure below shows a family of cost curves for a firm. The subscripts 1, 2, and 3 for the SRATC curves refer to different plant sizes.

Short description: A graph plots output against cost. Long description: The horizontal axis represents output. The vertical axis represents the cost. The graph plots four U-shaped curves. A large U-shaped curve representing LRAC passes through the points, A, C, E, and F. Vertical dashed lines are extended from A, C, E, a point, and F to meet the horizontal axis at Q subscript 1, Q subscript 2, Q subscript 3, Q subscript 4, and Q subscript 5. It encloses three small U-shaped curves. The first curve on the left represents SRATC subscript 1 and it intersects the large curve at A and passes through a point, B. The second curve at the center represents SRATC subscript 2 and it intersects the large curve at E. It also intersects the first curve at a point and it passes through a point, D. The third curve on the right represents SRATC subscript 3 and it intersects the large curve at F. It also intersects the second curve at a point.

FIGURE 8-2

Refer to Figure 8-2. Suppose this firm is producing at point B. Why might this firm continue to produce at point B, rather than immediately move to point C and produce the same level of output (Q2), at a lower cost?



▸ The firm may choose to remain at point B until the price of its output increases enough to justify building a new plant.

▸ The firm cannot produce at point C because there is no SRATC curve through this point.

▸ If this firm continues to produce at point B for any period of time, it must be because it is not profit-maximizing.

▸ There can be a significant time delay while the firm readjusts its plant size, during which time it remains at point B.

▸ If this firm continues to produce at point B for any period of time, it must be because it is not cost-minimizing.
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Microeconomics

Microeconomics


Edition: 17th
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brendasantsbrendasants
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