Table 13-6
Tom owns a factory in which he has produced TVs for five years. He has kept track of his average total cost as his level of production varies. This information is summarized below:

-From the information in Table 13-6,what can we conclude regarding the firm's long-run cost
A)Tom's factory exhibits diseconomies of scale for output between 10 and 30.
B)Tom's average-total-cost curve is L-shaped.
C)Tom's factory exhibits constant returns to scale.
D)Tom's average-total-cost curve is U-shaped.

Question

Table 13-6
Tom owns a factory in which he has produced TVs for five years. He has kept track of his average total cost as his level of production varies. This information is summarized below:

-From the information in Table 13-6,what can we conclude regarding the firm's long-run cost
A)Tom's factory exhibits diseconomies of scale for output between 10 and 30. 
B)Tom's average-total-cost curve is L-shaped. 
C)Tom's factory exhibits constant returns to scale. 
D)Tom's average-total-cost curve is U-shaped.

Quizplus · Accepted Answer

From the information in Table 13-6, we can conclude that Tom's average-total-cost curve is U-shaped. This is because the average total cost initially decreases as output increases from 0 to 10, then it reaches a minimum at 10 units of output, and then increases as output increases beyond 10. This indicates that the firm experiences economies of scale initially, followed by diseconomies of scale as output increases. Therefore, the correct option is D, Tom's average-total-cost curve is U-shaped.

Table 13-6 Tom Owns a Factory in Which He Has Produced TVs