Chapter 56, Problem 1FRQ

a)

To determine

The level of output that puts the firm at point B when the quantity is 3 minimizes short-run average total cost.

Explanation of Solution

At output level 6 which is the same level of the fixed cost that puts the firm at point B when the quantity is 3 minimizes short-run average total cost.

Economics Concept Introduction

Introduction: Fixed cost is the permanent or constant cost which a firm experience even when it is not producing any good.

b)

To determine

Whether firm experiencing economies of scale or diseconomies of scale at the output level of 3.

Explanation of Solution

The firm is experiencing economies of scale at the output level of 3 because with fewer units of resources firm gains more units of goods. And, the long run average total cost is also decreasing at the level of 3.

Economics Concept Introduction

Introduction: Economies of scale is a situation when a firm produce more goods by using fewer input resources or costs.

c)

To determine

Point and short-run average total cost curve at which the firm expects to produce an output of 9 on the graph.

Explanation of Solution

In the long run, if the firm expects to produce an output of 9, the firm will produce on ATC9 at point X on the graph.

Economics Concept Introduction

Introduction: Average total cost is determined by dividing the total cost to quantity.