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. FIGURE 8-3
-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.

Question

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.  FIGURE 8-3
-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.

Quizplus · Accepted Answer

Point B is on the SRATC curve for plant size 1. However, the SRATC curve for plant size 2 is below the curve for plant size 1 at all levels of output, indicating that plant size 2 has lower costs than plant size 1. Therefore, the firm could produce the same level of output at a lower cost with plant size 2, making it the optimal choice.

The Figure Below Shows a Family of Cost Curves for a Firm.The