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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Definitions:

Statute of Frauds

A legal principle that requires certain types of contracts to be in writing and signed by the parties involved to be legally enforceable.

Oral Contract

An agreement between parties spoken out loud and not written down, yet still legally binding under certain conditions.

Memorandum of Agreement

A document outlining an agreement between parties before finalizing a more formal contract, detailing the preliminary terms and conditions.

Statute of Frauds

A legal concept that requires certain types of contracts to be executed in writing and signed by the party to be charged.