Figure 8-11
Figure 8-11 illustrates the long-run average cost curve for a firm that produces picture frames. The graph also includes short-run average cost curves for three firm sizes: ATCₐ, ATCb and ATCc.
-Refer to Figure 8-11.If the firm chooses to produce and sell 25,000 frames per month by operating in the short run with a scale operation represented by ATCc

Question

Figure 8-11
  Figure 8-11 illustrates the long-run average cost curve for a firm that produces picture frames. The graph also includes short-run average cost curves for three firm sizes: ATCₐ, ATCb and ATCc.
-Refer to Figure 8-11.If the firm chooses to produce and sell 25,000 frames per month by operating in the short run with a scale operation represented by ATCc

Quizplus · Accepted Answer

If the firm chooses to produce and sell 25,000 frames per month by operating in the short run with a scale operation represented by ATCc, it will be operating at its minimum efficient scale (MES) and will be operating efficiently. The ATCc curve intersects the LRAC curve at its lowest point, indicating that the firm is producing at the lowest possible cost. Therefore, it is the most efficient scale of production for the given level of output. Choosing a smaller scale of operation would result in higher average costs, and choosing a larger scale of operation would also result in higher average costs. So, the firm will be operating efficiently at the MES.

Figure 8-11 Figure 8-11 Illustrates the Long-Run Average Cost Curve