Bconomlat, Apeil 2, 2009 6.9 [Relate 7Related to Solved Problem 11.6 on page 369

Question

Bconomlat, Apeil 2, 2009 6.9 [Relate 7Related to Solved Problem 11.6 on page 3691 Suppose hat Jill Johnson has to choose between bulding a smaller restaurant and a larger restaurant. In the following the relationship between costs and output for the restaurant is represented by the curve ATC, and the rela- tionship between costs and output for the larger restaurant is represented by the curve ATC count o concent The n all is i ATC ...Jap becaus their vo which r total cost per plzza Why would Japanese fin agraph like Based on "D Econonist, M AT 6.10 [Related to point, Time cussed merg Cable News News. After cided that a c average costs rately. Use al why the comp Based on Martin Seeing Operating 0 5,000 6,200 5,500 7,500 Quantity (pfzzas per week) a. tf ilexpects to produce 5,100 pizzas per week, should she build a smaller restaurant or a larger restaurant Briefly 6

Explanation / Answer

a)If Jill wants to produce 5100 pizza's per week she should buy a smaller restaurants.This is because if she buys a smaller restaurant than she would be operating on the lower part of the ATC1 curve which will reduce her costs, wheraas if she buys a bigger restaurant she would be operating on the higher part of the ATC2 which would cost her more.

b)If Jill wants to produce 6000  pizza's per week she should buy a larger restaurants.This is because if she buys a larger restaurant than she would be operating on the lowest part of the ATC2 curve which will reduce her costs, wheraas if she buys a smaller restaurant she would be operating on the higher part of the ATC1 which would cost her more.

c)This is because of economies of scale when producing 5200 the economies of scale operation are not fully utilized.

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