i need help please Long Run Size Adjustment Example um Size ment Exom LRHC LRAC
ID: 1105435 • Letter: I
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i need help please
Long Run Size Adjustment Example um Size ment Exom LRHC LRAC LRAC Scale Scale Scale IScalel Scale Scale Scale Firm's A, B and C are all producing in the short run at the sizes shown on the LRAC graph. For each firm: 1. Recommend changes to the firm's size in the long run based on their current position increase or reduce their size, and what specific size should it be changed to). If there is no need to chan firm's physical size, explain why that is the case. s. (i.e. should they ge the 2. Explain in detail, using the different kinds of returms to scale covered in class, WHY it would be a GoOD to make these changes. Be specific, and give multiple examples of the kinds of returns to IDEA for the firms scale that apply to each firm. Use examples from the Textbook Chapter on long run costs, as well as from Slide Show 4A.Explanation / Answer
1. Firm A should increase the scale of operations as by doing that it can lower the average cost of producing one more unit of output. (Increasing returns to scale)
Firm B should not change its position as it is already producing at minimum level of average costs. So by inceasing or decreasing the level of output, it will reduce its profit (Constant returns to scale )
Firm C should lower the scale of operations as by doing so, it will also lower its average costs of production (decreasing returns to scale).
2. Each point on the LRAC curve represents the minimum cost at which the associated level of output can be produced. So by looking at the level of minimum average costs that can be achieved, firms will move in the corresponding direction as explained in the part above,
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