Figure 2 The figure below depicts average total cost functions for a firm that p

Question

Figure 2 The figure below depicts average total cost functions for a firm that produces automobiles. Average Total Cost (S) ATCo ATCA ATCe Quantity of per day 23. Refer to Figure 2. In the long run, the firm can operate on which of the following average total cost curves? ATCA ATCB ATCC All of the above are correct. a. b. C. d. 24. Refer to Figure 2. The firm experiences economies of scale at which output levels? a. output levels less than M b. output levels between M and N c. output levels greater than N d. All of the above are correct as long as the firm is operating in the long run. 25. Refer to Figure 2. This firm experiences diseconomies of scale at what output levels? a. output levels greater than N b. output levels between M and N C. output levels less than M d. All of the above are correct as long as the firm is operating in the long run. 7

Explanation / Answer

Question 23

In long-run, a firm operates on that ATC curve which results in lowest ATC.

Among ATCA, ATCB, and ATCC, it is ATCB that results in lowest ATC.

So, in long-run, firm will operate on ATCB.

The correct answer is the option (b).

Question 24

The downward sloping portion of long-run average cost curve indicates economies of scale.

Upto output level M, long-run ATC curve, ATCD, is sloping downward.

So, at output levels less than M, firm will experience economies of scale.

The correct answer is the option (a).

Question 25

The upward sloping portion of long-run average cost curve indicates diseconomies of scale.

After output level N, long-run ATC curve, ATCD, is sloping upward.

So, at output levels greater than N, firm will experience diseconomies of scale.

The correct answer is the option (a).

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