Suppose Argyle Sachs Has to Choose Between Building a Smaller

question 16

Essay

Suppose Argyle Sachs has to choose between building a smaller sweater factory and a larger sweater factory. In the following graph, the relationship between costs and output for the smaller factory is represented by the curve ATC₁, and the relationship between costs and output for the larger factory is represented by the curve ATC₂.
a. If Argyle expects to produce 3600 sweaters per month, should he build a smaller factory or a larger factory? Briefly explain.
b. If Argyle expects to produce 5000 sweaters per month, should he build a smaller factory or a larger factory? Briefly explain.
c. If the average cost of producing sweaters is lower in the larger factory when Argyle produces 6500 sweaters per week, why isn't it also lower when Argyle produces 4000 sweaters per week?

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Definitions:

Customary Activity

An activity or behavior that is regularly observed and widely accepted as a tradition or norm within a particular group or society.

Financial Report

A formal record of the financial activities and condition of a business, person, or other entity, usually in the form of balance sheets, income statements, and cash flow statements.

Leisure Time

Free time available for hobbies and activities outside of work or other obligatory activities.

Occasion Time

A specific moment or period designated for an event or activity, influencing consumer purchasing behavior.