-Refer to Figure 8.6,which shows just three of a firm's various possible short-run average cost curves.Suppose the firm increases its output from 130 units to 160 units.Which of the following statements is true?
A) The average cost of producing the 160 units would be $90 if the firm expected the increase in production to be permanent
B) The average cost of producing the 160 units would be $80 if the firm expected the increase in production to be permanent
C) The average cost of producing the 160 units would be $175 if the firm expected the increase in production to be temporary
D) The average cost of producing the 160 units would be $80 if the firm expected the increase in production to be temporary

Question

-Refer to Figure 8.6,which shows just three of a firm's various possible short-run average cost curves.Suppose the firm increases its output from 130 units to 160 units.Which of the following statements is true?
A) The average cost of producing the 160 units would be $90 if the firm expected the increase in production to be permanent 
B) The average cost of producing the 160 units would be $80 if the firm expected the increase in production to be permanent 
C) The average cost of producing the 160 units would be $175 if the firm expected the increase in production to be temporary 
D) The average cost of producing the 160 units would be $80 if the firm expected the increase in production to be temporary

Quizplus · Accepted Answer

If the firm expects the increase in production to be permanent, it will move down its long-run average cost curve. The long-run average cost curve is the envelope of all the short-run average cost curves, and it shows the lowest possible average cost of producing any given output. At an output of 160 units, the long-run average cost is $80.