Multiple Choice
Refer to Table 13-12. At what quantity does Firm 4 achieve its efficient scale, defined as the level of output at which average total cost is minimized?
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2. Introductory Economic Models
Production Possibilities Frontier (PPF) - Introduction and Productive Efficiency
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Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
Which of the following is true if the bottom of the long run average cost (LRAC) curve is relatively flat?
A
Productive efficiency is only achieved at one specific output level.
B
Firms can produce a wide range of output levels at nearly the same average cost.
C
The firm experiences increasing average costs as output increases.
D
There are strong economies of scale at all output levels.
Verified step by step guidance1
Understand the shape and meaning of the Long Run Average Cost (LRAC) curve: it shows the lowest possible average cost of production for each output level when all inputs are variable.
Recognize that the bottom of the LRAC curve represents the range of output levels where the firm is most efficient, i.e., producing at minimum average cost.
If the bottom of the LRAC curve is relatively flat, it means that the firm can produce different quantities of output without a significant change in average cost.
This implies that productive efficiency is not limited to a single output level but can be maintained over a range of outputs, allowing flexibility in production scale.
Therefore, the correct interpretation is that firms can produce a wide range of output levels at nearly the same average cost, indicating constant or nearly constant returns to scale in that range.
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