Micro Economics For Today
10th Edition
ISBN: 9781337613064
Author: Tucker, Irvin B.
Publisher: Cengage,
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Question
Chapter 7, Problem 23SQ
To determine
The firm that exhibits the constant returns to scale.
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Section 11.5
The Short-Run and Long-Run Average Total Cost Curves
exhibit 1
SRATC for
small plant
SRATC for
medium plant
SRATC tor
large plant
LRATC
B
$500
$400
Economies
of Scale
Constant Returns
to Saie
1,000 1,200
Quantity of Computers
(per day)
Notice that the long-run average total cost (LRATC) curve is much flatter than the short-run average total cost (SRATC) curve. This is because firms
can be more flexible in the long run-they can choose which short-run cost curve they want to operate along, by choosing their plant scale. But they
cannot do this in the short run, during which they are stuck with their existing short-run cost curve. That is, in the short run, the firm operates with the
short-run curve it has based on past decisions. However, in the lang run, the firm is able to choose the short-run curve it wants to use.
In Exhibit 1 above, explain why the curve between A and B
looks different than the curve from A to C. Provide an example
of how a firm could opt to follow the…
© Macmillan Learning
The figure depicts the long-run average total cost curve for Magma Motors. If this firm is currently producing 11,000 cars
per year, what does it experience if it increases output by 1,000 cars?
Figure: Long-Run Average Total Cost Curve for Magma Motors
Cost
(per car)
$5,000
4,000
0
Long-run
average
total cost
$10,000
11,000 12,000
Quantity
economies of scope
economies of scale
minimum efficient scale
diseconomies of scale
SECTION B:
IDENTIFICATION OF COST CURVES
From Figure 1 Identify the cost curves 41, 42, 43, and 44.
41
Cost
42
43
44
Quantity of output
Figure 1: Cost curves
Chapter 7 Solutions
Micro Economics For Today
Ch. 7.5 - Prob. 1YTECh. 7 - Prob. 1SQPCh. 7 - Prob. 2SQPCh. 7 - Prob. 3SQPCh. 7 - Prob. 4SQPCh. 7 - Prob. 5SQPCh. 7 - Prob. 6SQPCh. 7 - Prob. 7SQPCh. 7 - Prob. 8SQPCh. 7 - Prob. 9SQP
Ch. 7 - Prob. 10SQPCh. 7 - Prob. 11SQPCh. 7 - Prob. 1SQCh. 7 - Prob. 2SQCh. 7 - Prob. 3SQCh. 7 - Prob. 4SQCh. 7 - Prob. 5SQCh. 7 - Prob. 6SQCh. 7 - Prob. 7SQCh. 7 - Prob. 8SQCh. 7 - Prob. 9SQCh. 7 - Prob. 10SQCh. 7 - Prob. 11SQCh. 7 - Prob. 12SQCh. 7 - Prob. 13SQCh. 7 - Prob. 14SQCh. 7 - Prob. 15SQCh. 7 - Prob. 16SQCh. 7 - Prob. 17SQCh. 7 - Prob. 18SQCh. 7 - Prob. 19SQCh. 7 - Prob. 20SQCh. 7 - Prob. 21SQCh. 7 - Prob. 22SQCh. 7 - Prob. 23SQCh. 7 - Prob. 24SQCh. 7 - Prob. 25SQ
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Similar questions
- What is a long-run average cost curve?arrow_forwardWhat shape of a long-run average cost curve illustrates economies of scale, constant returns to scale, and diseconomies of scale?arrow_forwardAverage cost curves (except for avenge fixed cost) tend to be U-shaped, decreasing and then increasing. Marginal cost curves have the same shape, though this may be harder to see since most of the marginal cost curve is increasing. Why do you think that average and marginal cost curves have the same general shape?arrow_forward
- What shapes would you generally expect each of the following cost curves to have: fixed costs, variable costs, marginal costs, average total costs, and average variable costs?arrow_forwardExplain why the marginal cost curve intersects the average total cost curve at the level of output where average total cost is at a minimum. The marginal cost curve intersects the average total cost curve at the level of output where average total cost is at a minimum because A. the firm begins experiencing economies of scale at this quantity. B. when the marginal cost of the last unit produced is below the average, it pulls the average down, and when the marginal cost is above the averge, it pulls the average up. C. when the marginal cost of the last unit produced is increasing, the marginal product of labor is at a minimum. D. the firm begins benefiting from division of labor at this quantity. E. the firm begins experiencing diminishing returns at this quantity.arrow_forward20 15 LRAC 10 10 15 20 25 30 Quantity (units per hour) 1. In the above figure, the long run average cost LRAC, between 0 and 10 units per hour what does the firm exhibit (Economies of scale, Diseconomies of scale or constant return to scale)? 2. In the above figure, the long run average cost LRAC, between 10 and 20 units per hour what does the firm exhibit (Economies of scale, Diseconomies of scale or constant return to scale)? 3. In the above figure , the long run average cost LRAC, between 20 and 30 units per hour what does the firm exhibit (Economies of scale, Diseconomies of scale or constant return to scale)? В I Cost (dollars per unit)arrow_forward
- (e) The following graph shows the short run and long run average cost curves of a firm. Price SRAC1 100 SRAC2 200 300 SRAC3 400 LRAC Output In the long run, which plant size should be used if the firm wants to produce 200 and 400 units of output?arrow_forward22. What does the Long Run Average Cost curve depict? a) It depicts the relationship between Average (Total) Cost and quantity produced when at least one input is fixed b) It depicts the relationship between Average (Total) Cost and the scale of operation in the long run c) Both a) and b) are true d) Neither a) nor b) is true 24. Assume that you start your own business producing clay pots and hire workers to start production. The first worker produces 20 clay pots a day, and when your hire the second worker, total production increases to 48 clay pots a day. What is the marginal product of labour for the second worker? a) 20 b) 28 c) 68 d) 34arrow_forward
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