Figure 7.11 Figure 7.11 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: ATC a , ATC b and ATC c .
-Refer to Figure 7.11.For output rates greater than 20 000 picture frames per month,
A)the firm will not make a profit because the average cost of production will be too high.
B)the firm will experience diseconomies of scale.
C)the firm will experience diminishing returns.
D)the short-run average total cost will equal the long-run average total cost of production.

Question

Figure 7.11  Figure 7.11 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: ATC a , ATC b and ATC c .
-Refer to Figure 7.11.For output rates greater than 20 000 picture frames per month,
A)the firm will not make a profit because the average cost of production will be too high. 
B)the firm will experience diseconomies of scale. 
C)the firm will experience diminishing returns. 
D)the short-run average total cost will equal the long-run average total cost of production.

Quizplus · Accepted Answer

The long-run average cost curve for the firm has a U-shape, indicating that initially there are economies of scale and then there are diseconomies of scale as output increases beyond a certain level. For output rates greater than 20,000 picture frames per month, the short-run average cost curves for three different firm sizes all intersect the long-run average cost curve at points where the long-run average cost is higher than the minimum point, indicating diseconomies of scale. Therefore, the correct answer is B, the firm will experience diseconomies of scale.

Figure 711 Figure 7