Question

If Romanticorp, producer of all things romantic, produces 100,000 boxes of candy hearts and this quantity (Q=100,000) minimizes the LATC, then:

1. if Romanticorp produces Q < 100,000 boxes, it experiences A) diseconomies of scale B)economies of scale .
2. if Romanticorp produces Q >100,000 boxes, it experiences  A) diseconomies of scale B)economies of scale .

Answer 1

Ans: If Romanticorp produces Q < 100,000 boxes, it experiences economies of scale.

Ans: If Romanticorp produces Q > 100,000 boxes, it experiences diseconomies of scale.

Explanation:

Long-run average total cost ( LATC) curve is 'U' shape. The output level at the minimum point of LATC curve shows an efficient level of production. Initialy the LATC curve slopes downward or dcrease due to an economies of scale in the production process. After the minimum point on LATC curve , this curve will slope upward or increase due to diseconomies of scale in the production process.