In Exhibit 1 above, explain why the curve between A and B looks different than the curve from A to C. Provide an example of how a firm could opt to follow the A to C curve instead of the A to B curve. Section 11.5The Short-Run and Long-Run Average Total Cost Curvesexhibit 1SRATC forsmall plantSRATC formedium plantSRATC forlarge plantLRATCB$500Diseconomies$400of ScaleEconomiesof ScaleConstant Returnsto Scale1,000 1,200Quantity of Computers(per day)Notice that the long-run average total cost (LRATC) curve is much flatter than the short-run average total cost (SRATC) curve. This is because firmscan be more flexible in the long run-they can choose which short-run cost curve they want to operate along, by choosing their plant scale. But theycannot do this in the short run, during which they are stuck with their existing short-run cost curve. That is, in the short run, the fim operates with theshort-run curve it has based on past decisions. However, in the long run, the firm is able to choose the short-run curve it wants to use.Average Cost

The LRATC curve is flatter than the SRATC curve because firms are more flexible in the long run and…

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bove, explain why the curve between A and B looks different than the curve from A to C. Provide an example of how a firm could opt to follow the A to C cu

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter4: Extent (how Much) Decisions

Section: Chapter Questions

Problem 3MC

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Question

In Exhibit 1 above, explain why the curve between A and B looks different than the curve from A to C. Provide an example of how a firm could opt to follow the A to C curve instead of the A to B curve.

Section 11.5
The Short-Run and Long-Run Average Total Cost Curves
exhibit 1
SRATC for
small plant
SRATC for
medium plant
SRATC for
large plant
LRATC
B
$500
Diseconomies
$400
of Scale
Economies
of Scale
Constant Returns
to Scale
1,000 1,200
Quantity of Computers
(per day)
Notice that the long-run average total cost (LRATC) curve is much flatter than the short-run average total cost (SRATC) curve. This is because firms
can be more flexible in the long run-they can choose which short-run cost curve they want to operate along, by choosing their plant scale. But they
cannot do this in the short run, during which they are stuck with their existing short-run cost curve. That is, in the short run, the fim operates with the
short-run curve it has based on past decisions. However, in the long run, the firm is able to choose the short-run curve it wants to use.
Average Cost

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