Question

Consider the following table of long-run total costs for three different firms:

Quanity	1	2	3	4	5	6	7
Firm A	10	21	32	43	54	66	80
Firm B	10	15	18	23	35	50	65
Firm C	10	19	28	37	46	55	60

Indicate whether each firm experiences economies of scale or diseconomies of scale. (Note: If a firm experiences economies of scale in one region and diseconomies of scale in another, make sure to select both columns.)

CHECK WHETHER ECONOMIE OF SCALE/ OR DISECONOMIES OF SCALE

FIRM	ECONOMIES OF SCALE	DISECONOMIES OF SCALE
A
B
C

Answer 1

We need to find long run average total cost which is the per unit cost. LRATC = TC/Q.

For each firm we find the same

	Quantity	1	2	3	4	5	6	7
Total cost	Firm A	10	21	32	43	54	66	80
Average cost		10.00	10.50	10.67	10.75	10.80	11.00	11.43
Total cost	Firm B	10	15	18	23	35	50	65
Average cost		10.00	7.50	6.00	5.75	7.00	8.33	9.29
Total cost	Firm C	10	19	28	37	46	55	60
Average cost		10.00	9.50	9.33	9.25	9.20	9.17	8.57

We conclude that

• Since Firm A has LRATC rising as output rises, it has diseconomies of scale
• Since Firm B has LRATC both falling and rising as output rises, it has both economies and diseconomies of scale
• Since Firm C has LRATC falling as output rises, it has economies of scale