Question

bcswebdav/pid-2915542-dt-content-rid-15073432_2/courses/20129.202001/Econ%20111_62_W + - + ~ Fit 384 396 404 8 9 10 168 168 168 640 720 800 Question 3 (15 marks, 5 marks per each firm). Consider the following table of long-run total cost for three different $60 $70 $80 $90 $100 $110 $120 Output (hypothetical units) Firm "A" TC I level Firm "B" TC level Firm "C" TC level 11 75 85 96 / 106 119 129 21 34 49 66 Does each of these firms experience economies of scale or diseconomies Question 4 (10 marks) Jack quit his job at Canadian Tire where he earned $28.000 a year. He cash in corporate bonds that earned 10% interest annually to start his own busine decided to use his friend's mini-bus donated for free and set up a commuter between Delta and Vancouver. There are people who will

Answer 1

Economies of scale means that as output increases, long-run average total cost decreases.
Diseconomies of scale means that as output increases, long-run average total cost increases.

Average total cost = TC/Q

Q	Firm "A"TC	Firm "A"ATC	Firm "B"TC	Firm "B"ATC	Firm "C"TC	Firm "C"ATC
1	60	60	11	11	21	21
2	70	35	24	12	34	17
3	80	36.67	39	13	49	16.33
4	90	22.5	56	14	66	16.5
5	100	20	75	15	85	17
6	110	18.3	96	16	106	17.67
7	120	17.14	119	17	129	18.43

Firm A exhibits economies of scale at each level of output because its long -run average total cost decreases as output increases at each level of output.

Firm B exhibits diseconomies of scale at each level of output because its long-run average total cost increases as output increases at each level of output.

Firm C exhibits economies of scale till Q=3 units and after that it exhibits diseconomies of scale.