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

question 51

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. Suppose this firm is producing output level Q₃ with plant size 2. Now suppose this firm changes to plant size 3 and is producing output level Q5. We can say that

• A) output has increased exactly in proportion to the increase in inputs.
• B) output has increased less than in proportion to the increase in inputs.
• C) output has increased more than in proportion to the increase in inputs.
• D) this firm has experienced economies of scale.
• E) the firm is then operating with the optimal plant size.

---

Definitions:

Cost of Equity

The return a firm theoretically pays to its equity investors, i.e., shareholders, to compensate them for the risk they undertake by investing their capital.

Financial Restructuring

The process of reorganizing a company's financial structure, typically in response to financial distress, to improve liquidity and stabilize the business.

Reorganization

The process of restructuring a company's business or financial arrangements, often in bankruptcy.

Distressed Firm

A company experiencing financial hardships, often reflected in its inability to meet financial obligations.