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sheila sheila
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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 output level Q3 with plant size 2. Now suppose this firm changes to plant size 3 and is producing output level Q5. We can say that



▸ output has increased more than in proportion to the increase in inputs.

▸ this firm has experienced economies of scale.

▸ output has increased exactly in proportion to the increase in inputs.

▸ the firm is then operating with the optimal plant size.

▸ output has increased less than in proportion to the increase in inputs.
Textbook 
Microeconomics

Microeconomics


Edition: 17th
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awbradshawawbradshaw
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