Question

For multiple select questions (square boxes), there could be zero, 1, 2, or as many as all of the answers that are correct and can be selected.

Long-run average total cost

1. has a minimum point at the firm's minimum efficient scale

2. might have a flat portion that indicates a constant average cost over that range of output.

3. might have a downward-sloping segment that indicates economies of scale

4. might have an upward-sloping segment that indicates dis-economies of scale

5. shows the minimum average total cost for each level of output that can be produced

Answer 1

All choices are correct.

Read the explanation below

For different plant sizes, we always have Marginal cost intersecting the SRATC from below at its minimum. LRATC seems to be enveloping all the SRATC thereby acquiring U shaped. Along the LRATC, we have SRATC = MC at one level of output for one plant size and SRATC = LRATC at all levels of output. The level of output at which SRATC = LRATC = MC is the point of minimum efficient scale where both LRATC and SRATC are at their minimum level. It therefore, connects all the costs that are associated with the minimum values of short run average total cost functions. To the left of this minimum value, there are economies of scale enjoyed by the firm. To the right of this value, there are diseconomies of scale. The shape of long run average total cost is therefore described by the economies and diseconomies of scale. Minimum efficient scale is the level of output at which the per unit cost, whether short run cost or long run cost, is minimum. The shape of the LAC also depicts the returns to scale