Refer to Diagram D Above

question 90

Multiple Choice

Refer to diagram D above.A firm producing efficiently with an existing plant size represented by SATC2 finds that market demand has fallen drastically.In the short run,this plant must

• A) continue to produce the same amount of output with plant size SATC2.
• B) reduce its output while continuing to produce with plant size SATC2.
• C) immediately switch to plant size SATC1.
• D) switch to plant size SATC1 and reduce its output.
• E) try to lower production costs by changing to a more efficient combination of inputs.

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Definitions:

Marginal Resource Cost

The additional cost incurred by producing one more unit of a product or service, especially in terms of the resources used in its production.

Resource Cost

The cost associated with the consumption or use of resources, including materials, labor, and capital in the production of goods and services.

Output

The amount of products or services produced by a company, industry, or economy in a specified period.

Labor Demand Curve

A graphical representation showing the relationship between the wage rate and the quantity of labor employers are willing to hire.