10. Long-run cost relationships The following graph shows the short-run average

Question

10. Long-run cost relationships The following graph shows the short-run average total cost curves and the long-run average total cost curve for a publishing firm. The five marked quantities indicate points of tangency between each short-run average total cost curve (SRATC) and the long-run average total cost curve (LRATC); for exam ple, Q1 marks the point of tangency between SRATCI and LRATC. The orange point on SRATC1 indicates the firm's current output level in the short un (2) SRATC, SRATCs LRAT SRATC, SRATC ATC 0. OUTPUT

Explanation / Answer

In the long run, If a firm wants to keep output at the initial level which is Q2 then it will minimize the cost which is buying producing at SRTC2 at its minimum point which corresponds with Q2 which also lies on the LRAC curve.

the correct option is d

The firm operating at the ideal plant size will produce at the point where SRTC and LRAC are at their minimum point which Q3 that will be the level of output where the firm maximizes its returns from economies of scale.

the correct option is a

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