Question

How to solve for b,c,d

The following table contains short-run average total cost data for 5 different plant sizes for the Stiller Co. company. Output Plant 1 Plant 2 Plant 3 Plant 4 Plant 5 Complete the following questions. a) Graph the short-run average total cost curves for the plants then sketch the long-run average total cost curve. Note: You must plot all of the points for each short-run average total cost curve to receive full marks.

Answer 1

b)

The best size of the plant to produce the desired output is one that has a minimum average total cost of production. For producing Q=12, the minimum average cost curve is ATC1. Then the optimum plant size will be 1. Similarly for Q=18, the minimum average cost curve is ATC2. Then the optimum plant size will be 2. Similarly for Q=36, the minimum average cost curve is ATC5. Then the optimum plant size will be 5. Therefore,

Output	Plant Size
12	1
18	2
36	5

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c)

A minimum efficient scale (MES) occurs where the firm can achieve the minimum average total cost of production in the long run. The long-run average cost is the locus of all the minimum average cost at each plant size. The minimum of minimum average cost 1,2,3,4, and 5 occurs at Q=28. This is the minimum efficient scale of production for the firm. Then the minimum efficient plant size is 3.

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d)

The minimum efficient scale occurs at Q=28.