Figure: Long-Run and Short-Run Average Cost Curves
(Figure: Long-Run and Short-Run Average Cost Curves) Look at the figure Long-Run and Short-Run Average Cost Curves.If a firm faced the long-run average total cost curve shown in the figure and it expected to produce 100,000 units of the good in the long run, the firm should build the plant associated with:
A)ATC1.
B)ATC2.
C)ATC3.
D)ATC1 or with ATC2.

Question

Quizplus · Accepted Answer

If the firm expects to produce 100,000 units of the good in the long run, it should build the plant associated with the minimum point on the long-run average total cost curve. In this case, that point is at ATC2. Building a plant associated with ATC1 would result in higher costs, and building a plant associated with ATC3 would result in excess capacity and inefficiency.