AP_Krugman_Textbook

566 section 10 Behind the Supply Curve: Profit, Production, and Costs

Tackle the Test: Free-Response Questions

1. Refer to the graph provided to answer the following questions.

a. The same level of fixed cost that puts the firm at point B

when the quantity is 3 minimizes short-run average total

cost for what output level?

b. At an output level of 3, is the firm experiencing economies

or diseconomies of scale? Explain.

c. In the long run, if the firm expects to produce an output of

9, the firm will produce on which short-run average total

cost curve and at which point on the graph?

B

ATC 3 ATC 6 ATC 9 LRATC

Cost of
unit

Quantity

(units)

0 35476 89

A C X

Y

Answer (5 points)

1 point: 6

1 point:economies of scale

1 point:Because at an output of 3, the LRATC is decreasing.

1 point:In the long run the firm will produce on ATC 9.

1 point:In the long run the firm will produce at point X.

2. Draw a correctly labeled graph showing a short-run average
   total cost curve and the corresponding long-run average total
   cost curve. On your graph, identify the areas of economies and
   diseconomies of scale.