Question

PLEASE ANSWER ALL THE QUESTIONS & ANSWERS MUST BE CLEAR TO READ! THANKS!

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 ma quantities indicate points of tangency between each short-run average total cost curve (ATC) and the long-run average total cost curve (LRA for example, Q1 marks the point of tangency between ATC1 and LRATC. The orange point on ATC1 indicates the firm's current output level in the short run (Q2) ATC IRAI ATC ATC ATC Cr Q, ,2,o

Answer 1

a) If the firm has to produce at the initial level i.e. at Q2 it will shift to operate at ATC2. Because at that curve the cost of production is less when producing at Q2. The answer is "D".

b) "False"

the minimum efficient scale is achieved at the minimum point of LRATC curve only. that is the point where the cost of production is the minimum.