The optimal plant size in the long run is
A) the one with the largest capacity.
B) the one with the lowest fixed costs.
C) the one with the lowest average total costs.
D) the one with the lowest marginal costs.

Question

Quizplus · Accepted Answer

The optimal plant size in the long run is the one with the lowest average total costs. This is because the average total cost is the sum of the fixed costs and the variable costs divided by the quantity produced. Therefore, in the long run, firms should choose the plant size that minimizes the average total cost in order to maximize profits. Choosing a plant with the lowest marginal costs may seem like a good option, but marginal costs do not take into account the fixed costs associated with different plant sizes. Choosing the largest capacity plant may result in economies of scale, but may also result in higher fixed costs and a higher average total cost.

The Optimal Plant Size in the Long Run Is