-Refer to the Graph Above to Answer This Question

question 24

Multiple Choice

-Refer to the graph above to answer this question.Which of the following statements is correct?

• A)Q₁ must be the best output for a firm to produce.
• B)Q₂ must be the best output for a firm to produce.
• C)While it is possible for a firm to be too small,it could not be too large.
• D)While it is possible for a firm to be too large,it could not be too small.
• E)Firms that produce an output which is less than Q₁ cannot be achieving minimum efficient scale.

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Definitions:

Elastic Demand

Product or resource demand whose price elasticity of demand is greater than 1, so that any given percentage change in price leads to a larger percentage change in quantity demanded. As a result, quantity demanded is relatively sensitive to (elastic with respect to) price.

Output Effect

The change in total output resulting from adjusting the production of one good in response to price changes, while holding utility constant.

Fixed Proportions

A production process where inputs are used in strict, unchangeable ratios.

Substitution Effect

The change in consumption patterns due to a change in the relative prices of goods, leading consumers to substitute one good for another.