Question

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 marked quantities indicate points of tangency between each short-run average total cost curve ( SRATC ) and the long-run average total cost curve ( LRATC ); for example, Q1 marks the point of tangency between SRATC1 and LRATC .

7. Long-run cost relationships 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 marked quantities indicate points of tangency between each short-run average total cost curve (SRATC) and the long-run average total cost curve (LRATC); for example, Q, marks the point of tangency between SRATC, and LRATC The orange point on SRATC, indicates the firm's current output level in the short run (Q1)- SRATC SRATC SRATC SRATC SRATC COST PER UNIT OUTPUT In the long run, if the firm decides to keep output at its initial level, what will it likely do? Shut down Shift to operate on SRATC Shift to operate on SRATC Stay on SRATC, but increase to the point touching LRATC Over which range of output levels do you find diseconomies of scale? Oto Q1 Greater than Q. Q2 to Q4 O 0 to Q: O 0 to Q

Answer 1

Q1
Answer
Option 3
The firm shifts to the lower average total cost to reduce the cost as at Q1 the firm can produce it in lower AC than current so it will shift to SRATC1
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Q2
Answer
Option 2
greater than Q3
The LRATC is increasing after the Q3 unit of output and diseconomies of scale is where the LRATC increases as output increases.