Question

Which of the following is true in constructing the long-run average cost curve?

a.	Short-run average total cost curves are used.	b.	Marginal costs curves are summed at each output level.
c.	Short-run average variable cost curves are summed at each output level.	d.	Short-run average fixed cost curves are summed at each output level.

There are _____ different areas identified by the textbook in moving along a long-run average cost curve.

a.	two	b.	three
c.	five	d.	four

Which of the following phenomena is not reflected in the long-run average cost curve?

a.	Maximum efficient scale	b.	Constant returns to scale
c.	Economies of scale	d.	Diseconomies of scale

How is minimum efficient scale best defined?

a.	The point where economies of scale end and constant returns to scale begin	b.	The point where economies of scale start
c.	The smallest feasible size of a firm	d.	The point where constant returns to scale end and diseconomies of scale start

Answer 1

In order to construct the LRAC curve, the short run average total cost curves are used.

1). The correct option is (a).

Short-run average total cost curves are used.

2). The correct option is (b).

Three

There are three different areas moving along the LRAC curve.

3). The correct option is (a).

Maximum efficient scale.

The phenomenas which are associated with LRAC curve are Constant Returns to scale, economies of scale and diseconomies of scale.

Maximum efficient scale is not associated with LRAC curve.

4). The correct option is (a).

The point where economies of scale end
and constant returns to scale begin.

minimum efficient scale (MES) or efficient scale of production is the lowest point where the plant (or firm) can produce such that its long run average costs are minimized.

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