The Long-Run Average Total Cost (LRATC) Curve

question 203

Multiple Choice

The long-run average total cost (LRATC) curve

• A) indicates the per-unit cost of producing various rates of output with a specific size of plant but variable levels of labor and technology.
• B) indicates the minimum per-unit cost that can be achieved at various output rates when the firm is free to choose among plant sizes.
• C) will be falling when diseconomies of scale are present and rising when economies of scale are present.
• D) is a U-shaped curve.
• E) is both a and d above.

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Definitions:

Period Costs

Expenses that are not directly tied to the production process and are expensed in the period they are incurred.

Variable Cost

Expenses that change in proportion to the activity of a business such as costs of goods sold, raw materials, and labor expenses.

Fixed Manufacturing Cost

Costs that remain constant regardless of the level of production, such as rent, salaries, and maintenance expenses.

Manufacturing Overhead

All indirect costs associated with the manufacturing process, including depreciation, utilities, and salaries for supervisors.