Question

exhibit 7-16 long-run average cost curves
costs
per
unit
(dollars)
quantity of output
(thousands per week)
which firm in exhibit 7-16 displays a long-run average cost curve with economies of scale throughout the range of output shown?
a. firm c
b. firms a and b
c. firm b
d. firm a

Explanation:

Economies of scale exist when long-run average cost decreases as output increases. Looking at the curves:

• Firm A's cost rises with output (diseconomies of scale).
• Firm B's cost first falls then stays flat (economies of scale only initially, then constant returns).
• Firm C's cost decreases continuously across the entire shown output range, fitting economies of scale throughout.

Answer:

a. Firm C