The Graph Below Includes Two Plant Sizes as Illustrated by AC₁

question 95

Multiple Choice

The graph below includes two plant sizes as illustrated by AC₁ and AC₂.

-Refer to the graph above to answer this question.If the firm is producing in a plant with AC₁ as its short run average cost curve,and a small market is limiting the firm's output to Q₁,which of the following statements is true?

• A)Building a larger plant would lower the firm's average cost of producing Q₁₀.
• B)Increasing the output in the current plant size would not lower the short-run average cost.
• C)The firm would benefit from a larger market because it could build a larger plant,capture economies of scale and achieve economic capacity.
• D)The firm would benefit from a larger market because it could build a larger plant and capture economies of scale,but it still would not be able to achieve economic capacity.

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