Question

Pretend you are an individual author and need the services of a typist. Imagine that you are just starting and must decide among three specialized computers (machines A, B, CI to rent, the more features it has the more costly- Here are your choices: for "A" ATC for "B ATC for "C ATC #of paRes Spet page $per pare per pas 30 50 100 500 1000 3.10 2000 3.05 6.33 5.00 4.00 3.20 8.60 5.55 3.50 1.90 1.70 1.60 33.83 20.50 10.50 2.50 1.50 1.00 Since your LRAC is the least expensive cost per level of output when you have a choice of changing your inputs( machines) what will be your LRAC? To answer create a table ,based on the information above, that shows: a.) Now draw/label the axis : cost per unit and # of units. Withoutplotting, Draw the familiar shapes of the three SRAC as though you are deriving the LRAC (like in lecture) , one SRAC for each machine SRAC (a) SRAC (b) SRAC (c) Like we did in class, plu choose. g all the values on your graph and show what you will choose and what you will not b). Plot on a separate graph the LRAC using the data above. Are you experiencing Economies of scale or diseconomies of scale? c) Can you tell what your MES would be? Why?

Answer 1

pages	Machine	SRAC
30	A	6.33	lowest
50	A	5.00	lowest
100	B	3.50	lowest
500	B	1.90	lowest
1000	C	1.50	lowest
2000	C	1.00	lowest

40 30 20 1000 1500 500 2000

green-A, red-B, purple-C

As the costs decrease with increase in production quantity, there are economies of scale

10 1000 2000

Minimum efficient scale minimizes long run average total cost, in the above case, it is when number of pages = 2000.