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 (ATC) and the long-run average total cost curve (LRATC); for example, Qı marks the point of tangency between ATCi and LRATC The orange point on ATC1 indicates the firm's current output level in the short run (2) ATC, ATCs ATC ATC OUTPUT In the long run, if the firm decides to keep output at its initial level, what will it likely do? O Stay on ATCǐ but decrease to the point touching LRATC O Shut down Shift to operate on ATOs O Shift to operate on ATC2 True or False: The minimum efficient scale is achieved at the minimum point on each average total cost curve. False O True

Answer 1

Initial level of output is Q₂ units.

In the long-run, firm operate at tangency of the short-run average total cost curve and the long-run average total cost curve with respect to the output produced.

So, with respect to output Q₂, in long-run, firms will operate on ATC_2.

Thus,

In the long-run, if the firm decides to keep output at its initial level then it will shift to operate on ATC₂.

Hence, the correct answer is the option (4).

The minimum efficient scale is achieved at the minimum point on the long-run average total cost (LRATC) curve.

Hence, the given statement is False.