Suppose Argyle Sachs has to choose between building a smaller sweater factory and a larger sweater factory. In the following graph, the relationship between costs and output for the smaller factory is represented by the curve ATC₁, and the relationship between costs and output for the larger factory is represented by the curve ATC₂.
a. If Argyle expects to produce 3600 sweaters per month, should he build a smaller factory or a larger factory? Briefly explain.
b. If Argyle expects to produce 5000 sweaters per month, should he build a smaller factory or a larger factory? Briefly explain.
c. If the average cost of producing sweaters is lower in the larger factory when Argyle produces 6500 sweaters per week, why isn't it also lower when Argyle produces 4000 sweaters per week?

Question

Suppose Argyle Sachs has to choose between building a smaller sweater factory and a larger sweater factory. In the following graph, the relationship between costs and output for the smaller factory is represented by the curve ATC₁, and the relationship between costs and output for the larger factory is represented by the curve ATC₂.

a. If Argyle expects to produce 3600 sweaters per month, should he build a smaller factory or a larger factory? Briefly explain.
b. If Argyle expects to produce 5000 sweaters per month, should he build a smaller factory or a larger factory? Briefly explain.
c. If the average cost of producing sweaters is lower in the larger factory when Argyle produces 6500 sweaters per week, why isn't it also lower when Argyle produces 4000 sweaters per week?

Quizplus · Accepted Answer

The Answer of Suppose Argyle Sachs has to choose between building a smaller sweater factory and a larger sweater factory. In the following graph, the relationship between costs and output for the smaller factory is represented by the curve ATC₁, and the relationship between costs and output for the larger factory is represented by the curve ATC₂. a. If Argyle expects to produce 3600 sweaters per month, should he build a smaller factory or a larger factory? Briefly explain. b. If Argyle expects to produce 5000 sweaters per month, should he build a smaller factory or a larger factory? Briefly explain. c. If the average cost of producing sweaters is lower in the larger factory when Argyle produces 6500 sweaters per week, why isn't it also lower when Argyle produces 4000 sweaters per week?

Suppose Argyle Sachs Has to Choose Between Building a Smaller