Question

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, Q1 marks the point of tangency between SRATC1 and LRATC The orange point on SRATCs indicates the firm's current output level in the short run (Q5). SRATC SRATC SRATC4 LRATO SRATC SRATC COST PER UNIT Q: QQAQ OUTPUT

In the long run, if the firm decides to keep output at its initial level, what will it likely do? O Stay on SRATC O Shut down O Shift to operate on SRATC3 O Shift to operate on SRATC1 True or False: The minimum efficient scale is achieved at the minimum point on each average total cost curve. O False O True

Answer 1

a) "A"

They will stay on the current cost curve because that is at the lowest point of the current curve and match with the long run cost curve.

b) False, minimum efficient scale is not achieved at the minimum point on each average total cost curve.