Chapter 1. Figure It Out 7.5

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Suppose that the long-run total cost function for a firm is LTC = 22,600Q - 300Q2 + Q3,and its long-run marginal cost function is LMC = 22,600Q - 600Q + 3Q2. (These cost functions yield a typical U-shaped long-run average cost curve.)

At what levels of output will the firm face economies of scale?

Question

The firm will experience economies of scale between 1Wh3cvJ2xF4= and IJaWHrT39D4= units of output.

Average cost reaches its minimum point at the output level where LATC = LMC. If the LATC is U-shaped, the firm must be experiencing economies of scale at output levels below that quantity. For this problem, LATC = 22,600 – 300Q + Q2; this equals LMC at an output level of 150. For further review see section “Economies of Scale”.

1.2 Screen 2 of 2

Question

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