Question

GAGE MINDTAP Searc orks Figure 13-9 depicts average total cost functions for a firm that produces automobiles. 0 0 Quantity of Automobiles per day o Refer to Figure 13-9. This firm experiences diseconomies of scale at what output levels? O a. output levels greater than N b . output levels between M and N c. output levels less than M o o O d. All of the above are correct as long as the firm is operating in the long run. MacBook Air

Answer 1

The figure given in the question depicts average total cost functions for a firm that produces automobiles.

This firm experiences diseconomies of scale at output levels greater than N (Option A).

Explanation – The figure given in the graph depicts ATC for a firm in the long run. In long run, the firm does not have any fixed costs, all costs are variable. So, the firm can determine the least costly technology to be used for production. As a result, many firms experience economies of scale. Economies of scale refer to a situation when the cost incurred by the firm goes down as the quantity produced goes up. The opposite scenario would be termed as diseconomies of scale i.e., when the cost incurred by the firm goes up as quantity goes up.

In the given graph, we see that when output levels are less than M, then the firm is experiencing economies of scale because the ATC incurred by the firm goes down as Q increases. For the output levels between M and N, the cost incurred by the firm is constant. However, when output levels are greater than N, then the firm is experiencing diseconomies of scale.