The graph depicts the long-run average total cost curve (LRATC) for a firm and some possible short-run average Average total cost A total cost curves (SRATC) SRATC Given the LRATC curve, which SRATC curve could NOT SRATC 3 be part of the firm’s cost structure? LRATC none of these B C SRATC 2 SRATC 3 SRATC 2 SRATC 1 all of these Output Which of the three types of scale does the LRATC curve exhibit between points A and B? economies of scale constant returns to scale diseconomies of scale
The Correct Answer and Explanation is :
To provide a detailed explanation and the correct answer for your question about the LRATC and SRATC curves, here’s a step-by-step breakdown:
- Understanding LRATC and SRATC Curves:
- LRATC (Long-Run Average Total Cost) Curve: This curve represents the minimum cost of producing a given output when all inputs can be varied. It reflects the firm’s production capabilities in the long run, where it can adjust all resources optimally.
- SRATC (Short-Run Average Total Cost) Curves: These curves represent the cost structure when some inputs are fixed. A firm can produce at different levels of output, but it cannot adjust all factors of production in the short run.
- Which SRATC Curve Could NOT Be Part of the Firm’s Cost Structure?
- The SRATC curve that could not be part of the firm’s cost structure would be one that is above the LRATC curve and does not touch it at any point.
- This is because, in the long run, firms can adjust all inputs, and the LRATC curve represents the lowest possible cost for each level of output. If any SRATC curve lies entirely above the LRATC curve, it implies that the firm is not minimizing its costs, which is not feasible in the long run.
- Therefore, SRATC 3 could not be part of the firm’s cost structure.
- What Type of Scale Does the LRATC Curve Exhibit Between Points A and B?
- The LRATC curve shows economies of scale between points A and B.
- Economies of scale occur when the firm is able to reduce its cost per unit as output increases. This happens because the firm can spread fixed costs over a larger number of units and may also experience more efficient use of resources.
- On the LRATC curve, between points A and B, the curve slopes downward, which indicates that increasing output leads to a reduction in average total cost — a characteristic of economies of scale.
Let me generate an image that depicts these relationships, highlighting the LRATC curve, the SRATC curves, and the relevant portion showing economies of scale.
Here is the graph you requested, showing the LRATC curve and the three SRATC curves. The graph illustrates that SRATC 3 cannot be part of the firm’s cost structure, as it lies entirely above the LRATC curve. It also highlights the economies of scale between points A and B on the LRATC curve, where increasing output leads to lower costs per unit.\
