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.Should this profit-maximizing firm ever consider moving from point E (output level Q3 on SRATC2)to point F (output level Q5 on SRATC3)?
A)No,because they are already producing at their lowest possible cost at point E.
B)Yes,because the firm can take advantage of economies of scale.
C)Yes,because SRATC3 is the optimal plant size for this firm.
D)No,because producing at point F implies a higher cost per unit of output.
E)Yes,if the product price rises enough to lead the firm to expand to plant size 3.

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.Should this profit-maximizing firm ever consider moving from point E (output level Q3 on SRATC2)to point F (output level Q5 on SRATC3)?
A)No,because they are already producing at their lowest possible cost at point E. 
B)Yes,because the firm can take advantage of economies of scale. 
C)Yes,because SRATC3 is the optimal plant size for this firm. 
D)No,because producing at point F implies a higher cost per unit of output. 
E)Yes,if the product price rises enough to lead the firm to expand to plant size 3.

Quizplus · Accepted Answer

If the product price rises enough, the firm may find it profitable to expand to a larger plant size, even if it means moving to a higher short-run average total cost curve.

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