Refer to the Long-Run Cost Diagram for a Firm

question 262

Multiple Choice

Refer to the long-run cost diagram for a firm. If the firm produces output Q₂ at an average cost of ATC₃, then the firm is

• A)producing the profit-maximizing output but is failing to minimize production costs.
• B)incurring X-inefficiency but is realizing all existing economies of scale.
• C)incurring X-inefficiency and is failing to realize all existing economies of scale.
• D)producing that output with the most efficient combination of inputs and is realizing all existing economies of scale.

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Definitions:

Invisible Hand

A term coined by Adam Smith to describe the self-regulating nature of the marketplace, where individuals' pursuit of self-interest leads to beneficial social outcomes.

Market Behavior

Refers to the aggregate actions and reactions of buyers and sellers in a marketplace, influencing prices, supply, and demand.

Trade

The exchange of goods, services, or both between two or more parties, often internationally or domestically to mutual advantage.

Short-run

A time period in economics during which at least one input, such as factory size or capital, is fixed, and firms can adjust production levels only by changing variable inputs like labor.