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Helen Kebede Helen Kebede
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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. Should this profit-maximizing firm ever consider moving from point E (output level Q3 on SRATC2) to point F (output level Q5 on SRATC3)?



▸ Yes, because the firm can take advantage of economies of scale.

▸ Yes, because SRATC3 is the optimal plant size for this firm.

▸ No, because they are already producing at their lowest possible cost at point E.

▸ Yes, if the product price rises enough to lead the firm to expand to plant size 3.

▸ No, because producing at point F implies a higher cost per unit of output.
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Microeconomics

Microeconomics


Edition: 17th
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jchang19jchang19
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Helen Kebede Author
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A year ago
You make an excellent tutor!
shangshang
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Thanks for your help!!
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Good timing, thanks!
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