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The figure below shows a family of cost curves for a firm. The subscripts 1, 2, and 3 for the SRATC curves refer to different plant sizes. LRAC SRATC3 SRATC2 SRATC Cost < D E 01 02 03 04 05 Output FIGURE 8-3 29) Refer to Figure 8-3. If this firm is producing at point B, then A) this firm is producing a level of output that is technically inefficient in the long run. B) this firm is experiencing decreasing returns to scale. C) this firm could produce the same level of output at a lower cost with plant size 2. D) it should employ more of its variable factors of production. E) plant size 1 is optimal.

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Jean Keeling
Jean KeelingLv2
18 Dec 2017
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Related questions

The figure below shows a family of cost curves for a firm. The subscripts 1, 2, and 3 for the SRATC curves refer to different plant sizes. LRAC SRATC31 SRATC SRATC1 Cost pЕ , 21 22 23 24 25 Output FIGURE 8-3 26) Refer to Figure 8-3. If this firm is producing the level of output associated with point B, then A) this firm is producing a level of output that is cost minimizing in the long run. B) this firm is experiencing decreasing returns to scale. C) this firm could produce the same level of output at a lower cost with plant size 2. D) all of the above. E) none of the above.

28) Refer to Figure 8-3. If this firm is producing at point B, then A) this firm is producing a level of output that is technically inefficient in the long run. B) this firm is experiencing decreasing returns to scale. C) this firm could produce the same level of output at a lower cost with plant size 2 D) it should employ more of its variable factors of production. E) plant size 1 is optimal.

20) When price is less than average variable cost at the profit-maximizing level of output, a firm should: A) continue to produce the level of output at which marginal revenue equals marginal cost if it is operating in the long run. B) shutdown, because it cannot even cover all of its variable costs let alone its fixed costs if it stays in business. C) shutdown, because it will lose nothing in that case. D) continue to produce the level of output at which marginal revenue equals marginal cost if it is operating in the short run. 21) When price is greater than average variable cost but less than average total cost at the profit-maximizing level of output, a firm should: A) continue to produce the level of output at which marginal revenue equals marginal cost. B) shutdown to minimize its losses. C) reduce output to the level at which price equals average variable cost to minimize its losses. D) increase output to minimize its losses. 22) Assume that at the current market price, a perfectly competitive firm's profit-maximizing level of output yields total revenues that are just equal to total costs. Which of the following statements applies to this firm? A) The firm should increase its explicit costs to reduce its tax burden. B) The firm should shut down right now. C) The firm should continue to operate in the short run to minimize losses, but shut down if things don't improve over the long run. D) The firm is earning zero economic profit and should continue to operate. 23) The perfectly competitive firm's supply curve: A) coincides with its perfectly elastic demand curve. B) is the firm's average total cost curve above the shutdown point. C) is perfectly inelastic at the market price. D) is the firm's marginal cost curve above the minimum point on the AVC curve. 24) Assume there is a decrease in the market demand for a good sold by price-taking firms that are initially producing the profit-maximizing level of output. How will the market adjust over time? A) Firms will exit the market, causing price to rise until losses are eliminated. B) Firms will exit the market, causing price to fall until positive profits are eliminated. C) Firms will enter the market, causing price to fall until positive profits are eliminated. D) Firms will enter the market, causing price to rise until losses are eliminated. 25) What is the "most efficient capacity" for the perfectly competitive firm? A) The plant size for which Price = AR. B) The plant size at which LRAC is at its minimum. C) The plant size at which MR = MC. D) The plant size at which any of the SRATC curves are tangent to the LRAC curve.

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