The figure below depicts average total cost functions for a firm that produces a

Question

The figure below depicts average total cost functions for a firm that produces automobiles. Use the figure to answer the following questions. Figure 13-7 Average Total Cost ($ ATC ATC Quantity of Automobles per day 13. Refer te Figure 13-7. Which of the curves is most likely to characterize the short-run average total cost curve of the largest factory? . ATCA b. ATCB c. ATC d. ATCD 14. Refer to Figure 13-7. This firm experiences diseconomies of scale at what output levels? a. output levels above N b. output levels between M and N output levels below M d. c. All of the above are correct, if the firm is operating in the long run. 15. When price is greater than marginal cost for a firm in a competitive market, a. marginal cost must be falling. b. the firm must be minimizing its losses c. there are opportunities to increase profit by increasing production. d. the firm should decrease output to maximize profit.

Explanation / Answer

13) Option c is correct

ATCc reflect the SRATC of the largest factory.

14) Option a is correct

Diseconomies of scale are experienced at output levels above N (increasing LRATC)

15) Option c is correct

If P > MC, there are opportunities to increase profit by increasing production. (Profit is maximized where P = MC)

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