a. If the firm is producing light bulbs with Plant #1, what
are the firm’s average costs?
b. At does the firm display decreasing, constant, or
increasing costs?
c. How does your answer in part (b) relate to the concept of
economies of scale?
d. Repeat parts (a), (b), and (c) for output level with
Plant #2 and output level with Plant #3.
7. In the text, we stated that the LRAC curve eventually slopes
upward because of diseconomies of scale. In the previous chapter
we saw that the SRATC curve eventually slopes upward because
of diminishing marginal product of the variable factor.
a. Explain the difference between diseconomies of scale and
diminishing marginal product of the variable factor. Why is
one a short-run concept and the other a long-run
concept?
b. Draw a diagram with short-run and long-run average cost
curves that illustrates for the same level of output both
Q 1Q 1 ,Q 2
Q 3