The Figure Below Shows a Family of Cost Curves for a Firm.The

question 85

Multiple Choice

The figure below shows a family of cost curves for a firm.The subscripts 1,2,and 3 for the SRATC curves refer to different plant sizes.
FIGURE 8-3
-Refer to Figure 8-3.Should this profit-maximizing firm ever consider moving from point E (output level Q3 on SRATC2) to point F (output level Q5 on SRATC3) ?

• A)No,because they are already producing at their lowest possible cost at point E.
• B)Yes,because the firm can take advantage of economies of scale.
• C)Yes,because SRATC3 is the optimal plant size for this firm.
• D)No,because producing at point F implies a higher cost per unit of output.
• E)Yes,if the product price rises enough to lead the firm to expand to plant size 3.

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Definitions:

Required Return

The minimum expected return an investor demands for an investment, considering the risk associated with it.

Absorption Costing

An accounting method that includes all of the costs associated with production, including variable costs and fixed overhead.

Selling Price

The amount of money charged for a product or service, or the sum the market will bear.

Return On Investment

measures the gain or loss generated on an investment relative to the amount of money invested.