Consider the following cost curves for Firm X,a perfectly competitive firm.
FIGURE 9-5
-Refer to Figure 9-5.If Firm X has a capital stock that generates SRATC1,then in the long run Firm X will have to

Question

Consider the following cost curves for Firm X,a perfectly competitive firm.
  FIGURE 9-5
-Refer to Figure 9-5.If Firm X has a capital stock that generates SRATC1,then in the long run Firm X will have to

Quizplus · Accepted Answer

In the long run, if a firm's capital stock generates a short-run average total cost (SRATC) curve like SRATC1, which is above the long-run average total cost (LRATC) curve, the firm will either need to expand its plant size to achieve economies of scale and lower its average costs to become competitive in the long run, or exit the industry if it cannot efficiently reduce its costs. This is because, in the long run, firms aim to operate where their costs are minimized, which is at the minimum point of the LRATC curve.

Consider the Following Cost Curves for Firm X,a Perfectly Competitive