Question

The four questions refer to the following table in which columns 1, 2, and 3 give the economically efficient combinations of labor and capital for various output levels. The price of capital is $50, and the price of labor is $30. Show work and explain

(1) Output	(2) Capital	(3) Labor	(4) Long-Run Total Cost	(5) Long-Run Average Cost	(6) Long-Run Marginal Cost
20	8	12	______	______	______
40	15	20	______	______	______
60	25	35	______	______	______
80	40	50	______	______	______

Using the above table, answer the following questions.

• Economies of scale exist through ______ units of output because _________ is ____________.
• At 20 units of output LTC = $_________ and LAC = $______. Between zero and 20 units LMC = $______.
• At 40 units of output LTC = $______ and LAC = $______. Between 20 and 40 units LMC = $______.
• Diseconomies of scale exist beyond ______ units of output because _________ is _________.

Answer 1

The economies of scale exists when long-run Average total cost continue to decrease with the increase in the output level.

The diseconomies of scale exists when long-run Average total cost continue to increase with the increase in the output level.

Economies of scale exist through 20 units of output because Long-run average cost is decreasing.

At 20 units of output LTC = $760 and LAC = $38. Between zero and 20 units LMC = $38.

At 40 units of output LTC = $1350 and LAC = $33.75. Between 20 and 40 units LMC = $29.5.

Diseconomies of scale exist beyond 60 units of output because long-run average total cost is increasing.