Question

FRATC4 RATO, SRATC SRBATC2 (dollars) 1,000 4,000 2,000 3,000 Quantity 23. In Exhibit 6-14, a firm finds that it is experiencing numerous managerial and information problems. The position of its short and long-run average total cost curves suggest that it is operating at a production level: a. between 0 and 1,000. b. between 1,000 and 2,000. c. between 2,000 and 3,000. d. between 3,000 and 4,000. e. where it should shut down immediately. 24. In Exhibit 6-14, the U-shaped LRAC curve indicates which of the following as quantity increases from 0 to 4,000? a. Diseconomies of scale; constant returns to scale; economies of scale. b. Constant returns to scale; economies of scale; diseconomies of scale. c. Economies of scale; constant returns to scale; diseconomies of scale. d. Diseconomies of scale; economies of scale; constant returns to scale. e. Economies of scale; diseconomies of scale; constant returns to scale.

Answer 1

23) option D is correct. There are diseconomies of scale under this range of output due to which there are managerial problems of coordination and informational asymmetry. The department level information system is creating coordination problems as well as organisational problems because there is congestion and overload of work. Due to this reason per unit cost of production continue to increase as the output is increased.

24) option C is correct. there are cost advantages initially which are combined under economies of scale. There is no change in per unit cost which means there are constant returns to scale in the middle. Then with managerial problems and coordination problems there are cost disadvantages in terms of diseconomies of scale..