-Refer to Figure above, which shows just three of a firm's various possible short-run average cost curves. Suppose the firm is currently producing 160 units at and average cost of $90 per unit. Which of the following statements is true?
A) The firm could reduce its average cost by employing more capital
B) The firm could reduce its average cost by employing less capital
C) The firm is producing its output at the lowest possible long-run average cost
D) The firm would increase its average cost if it used more capital

Question

-Refer to Figure above, which shows just three of a firm's various possible short-run average cost curves. Suppose the firm is currently producing 160 units at and average cost of $90 per unit. Which of the following statements is true?
A) The firm could reduce its average cost by employing more capital 
B) The firm could reduce its average cost by employing less capital 
C) The firm is producing its output at the lowest possible long-run average cost 
D) The firm would increase its average cost if it used more capital

Quizplus · Accepted Answer

If the firm is currently producing on a higher short-run average cost curve, employing more capital could move it to a lower short-run average cost curve, thereby reducing its average cost per unit. This is because, in the short run, adjusting capital (which is a fixed input) can lead to operating on a more efficient scale.

-Refer to Figure Above, Which Shows Just Three of a Firm's