The following figure shows the long-run average cost curve for a tire manufacturer and the long-run average cost curve for a rubber producer. If ten pounds of rubber is required for producing one tire, which of the following is true?
Figure 14.1

Question

The following figure shows the long-run average cost curve for a tire manufacturer and the long-run average cost curve for a rubber producer. If ten pounds of rubber is required for producing one tire, which of the following is true?​ ​
Figure 14.1
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Quizplus · Accepted Answer

From the graph, we can see that the long-run average cost curve for tire production is lower than the long-run average cost curve for rubber production. This means that the tire manufacturer can produce tires at a lower cost than producing rubber. Therefore, it would be more efficient for the tire manufacturer to buy rubber from the rubber producer rather than producing it themselves.

The Following Figure Shows the Long-Run Average Cost Curve for a Tire