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 firm ever consider moving from point E (output level Q₃ onSRATC2) to point F (output level Q5 on SRATC3)?
A) Yes, because the firm can take advantage of economies of scale.
B) Yes, if the product price rises enough to lead the firm to expand to plant size 3.
C) No, because they are already producing at their lowest possible cost at point E.
D) No, because producing at point F implies a higher cost per unit of output.
E) Yes, because SRATC3 is the optimal plant size for this firm.

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 firm ever consider moving from point E (output level Q₃ onSRATC2) to point F (output level Q5 on SRATC3)?
A) Yes, because the firm can take advantage of economies of scale. 
B) Yes, if the product price rises enough to lead the firm to expand to plant size 3. 
C) No, because they are already producing at their lowest possible cost at point E. 
D) No, because producing at point F implies a higher cost per unit of output. 
E) Yes, because SRATC3 is the optimal plant size for this firm.

Quizplus · Accepted Answer

Moving from point E to point F would require the firm to expand to plant size 3 and incur higher fixed costs. However, if the product price rises enough to cover the higher fixed costs and generate additional profits, then it would make sense for the firm to consider this move. Moving to a larger plant size can sometimes result in economies of scale, which can lower the firm's average costs and increase profitability. Therefore, option B is the best choice.

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