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1. Suppose that three different technologies can be used to produce a special product. The following...

1. Suppose that three different technologies can be used to produce a special product. The following table shows the total cost related to each technology for the amount of output produced per day. A firm is considering adopting a proper technology to produce this special product. Derive the long-run average- total-cost curve to help the firm making its decision.

Quantity

1

2

3

4

5

6

7

Firm 1

$30

$40

$50

$60

$75

$90

$110

Firm 2

15

25

39

56

75

96

119

Firm 3

21

29

37

50

68

106

132
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Answer #1

Average cost = TC/Q

Long run average cost is derived from the minimum of short run average total costs.

Q TC1 ATC1 TC2 ATC2 TC3 ATC3 LRATC
1 30 30 15 15 21 21 15
2 40 20 25 12.5 29 14.5 12.5
3 50 16.67 39 13 37 12.33 12.33
4 60 15 56 14 59 12.5 12.5
5 75 15 75 15 68 13.6 13.6
6 90 15 96 16 106 17.67 15
7 110 15.7 119 17 132 18.86 15.7

By plotting we get the curve as shown below:

Average total to TATOR 21 -LRATG IN 1 2 6 7 0 E 3 4 5 Quantity

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