Question

9. 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 SRATC LRATA SRATC, SRATC COST PER UNIT 1 - - - - OUTPUT

Answer 1

Answer : 1) The answer is option B.

Here in short-run the current output level is Q5. At Q5 output level SRATC5 is tangent with LRATC. So, if the firm want to keep the output at initial level in long-run then the firm will stay on SRATC5. Therefore, option B is correct.

2) The answer is False.

The minimum efficient scale occur at that point where the long-run average total cost is minimum. Therefore, the given statement is false.

3) Explicit cost = Rent + Wages + Materials and utilities cost

=> Explicit cost = 60,000 + 200,000 + 7,000

=> Explicit cost = $267,000

Implicit cost = Opportunity cost = Per year income from quit job + 6% interest rate of investment

=> Implicit cost =  60,000 + 6% of $100,000 = 60,000 + (0.06 * 100,000)

=> Implicit cost = $66,000

Total cost = Explicit cost + Implicit cost =$267,000 + $66,000 = $333,000

Therefore, Felix's explicit cost is $267,000.

Felix's total cost is $333,000 .