Chloe's Café sells gourmet cinnamon rolls. In the long run, the café incurs a total cost of $500 to produce 1,000 cinnamon rolls. If Chloe's Café exhibits economies of scale between 1,000 and 2,000 cinnamon rolls, the long-run average total cost for 1,500 cinnamon rolls is

Question

​Chloe's Café sells gourmet cinnamon rolls. In the long run, the café incurs a total cost of $500 to produce 1,000 cinnamon rolls. If Chloe's Café exhibits economies of scale between 1,000 and 2,000 cinnamon rolls, the long-run average total cost for 1,500 cinnamon rolls is

Quizplus · Accepted Answer

If the café exhibits economies of scale between 1,000 and 2,000 cinnamon rolls, it means that the long-run average total cost will decrease when the café produces more than 1,000 cinnamon rolls. Therefore, the cost per cinnamon roll will be lower when producing 1,500 cinnamon rolls compared to when producing 1,000 cinnamon rolls. Since the total cost to produce 1,000 cinnamon rolls is $500, the long-run average total cost per cinnamon roll is $0.50. As the café is expected to exhibit economies of scale between 1,000 and 2,000 cinnamon rolls, the long-run average total cost for 1,500 cinnamon rolls is likely to be lower than $0.50. Hence, option B is correct.

​Chloe's Café Sells Gourmet Cinnamon Rolls

Chloe's Café Sells Gourmet Cinnamon Rolls