Figure 7.10 -Refer to Figure 7.10.Suppose for the past 8 years the firm has been producing Q_dunits per period using plant size ATC₄.Now, following a permanent change in demand, it plans to cut production to Q_c units.The average cost of production A)In the short run, its average cost falls from $47 to $41, and in the long run, average cost falls even further to $37. B)In the short run, its average cost rises from $47 to $55, and in the long run, average cost falls to $41. C)In the short run, its average cost falls from $47 to $37, and in the long run, average cost rises to $41. D)In the short run, its average cost rises from $47 to $55, and in the long run, average cost falls to $37.

Question

Quizplus · Accepted Answer

The firm is operating at point A in the short run and has an average cost of $47. If it wants to produce Q_c units, it will have to temporarily reduce its plant size to ATC₃, which will increase its average cost to $55. However, in the long run, the firm can adjust its plant size to ATC₂, which will allow it to achieve an average cost of $41.

Figure 7.10 -Refer to Figure 7.10.Suppose for the Past 8 Years the 8