Exhibit 7.4 -Refer to Exhibit 7.4,which shows short-run average cost curves.For output less than q_a,when is average cost the lowest? A)when the plant is large B)when the plant is medium-size C)when the plant is small D)at an output level less than q E)at an output level more than q_b

Question

Quizplus · Accepted Answer

When output is less than q_a, the plant is operating in the first stage where the short-run average cost curve is decreasing. This means that as output increases, average cost is decreasing. Therefore, the plant should be smaller to take advantage of decreasing average costs.

Exhibit 7.4 -Refer to Exhibit 7.4,which Shows Short-Run Average Cost Curves.For Output