dolution

dolution.

 

1. Consider the following diagram of SRATC and LRAC curves.

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a. The SRATC curve is drawn for a given plant size. Given this plant size, what is the level of output that minimizes short-run average costs? What are unit costs in the short run at this level of output?

 

b. What is the level of output for which this plant size is optimal in the long run? What are unit costs in the short run at this level of output?

 

c. Explain the economics of why c1 is greater than c4.

 

d. Suppose the firm wants to increase output to Q2 in the short run. How is this accomplished, and what would unit costs be?

 

e. Suppose the firm wants to increase output to Q2 in the long run. How is this accomplished, and what would unit costs be?

 

dolution

 
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