Refer to Figure 13-5. At which quantity does the efficient scale of production occur?

• A. At the quantity where average total cost is minimized
• B. At the quantity where total cost is maximized
• C. At the quantity where marginal cost is zero
• D. At the quantity where marginal cost equals average variable cost

Answer: (A)

Verified step by step guidance

1. Understand the concept of efficient scale: It is the quantity of output that minimizes the average total cost (ATC). This means the firm is producing at the lowest possible cost per unit.
2. Recall the relationship between marginal cost (MC) and average total cost (ATC): The efficient scale occurs where MC intersects ATC at its minimum point.
3. Identify that at the efficient scale, the average total cost curve is at its lowest point, so the quantity corresponding to this minimum ATC is the efficient scale.
4. Note that total cost maximized is not relevant here because efficient scale focuses on cost minimization, not maximization.
5. Recognize that marginal cost being zero or equal to average variable cost does not define the efficient scale; the key is where MC equals ATC at its minimum.