Exhibit 7-14 Cost curves
-In Exhibit 7-14, a firm finds that it is experiencing numerous managerial and information problems. The position of its short- and long-run average total cost curves suggest that it is operating at a production level:

Question

Exhibit 7-14 Cost curves 
-In Exhibit 7-14, a firm finds that it is experiencing numerous managerial and information problems. The position of its short- and long-run average total cost curves suggest that it is operating at a production level:

Quizplus · Accepted Answer

The short-run average total cost curve (SRATC) is shown by the "U" shaped curve, and the long-run average total cost curve (LRATC) is the envelope curve that passes through the lowest points of the SRATC curves. The intersection of the SRATC and LRATC curves indicates the firm's current position. In this case, both curves intersect at a production level between 3,000 and 4,000 units. This means that the firm is experiencing managerial and information problems that are causing inefficiencies in its operations. Therefore, the best choice would be D, between 3,000 and 4,000 units.

Exhibit 7-14 Cost Curves