The figure given below shows three Short Run Average Total Cost (SRATC) curves and the Long Run Average Total Cost (LRATC) curve of a firm.Figure 8.3

-In the oil tanker industry, large companies have lower risk and are able to optimize vessel utilization. If consolidation allows companies to lower their long-run average total costs, this is an example of:
A)the opportunity costs of mergers.
B)the increase in utility of managers by being able to control larger companies.
C)the dangers of oil tankers to the environment.
D)the economies of scale in the oil tanker industry.
E)the law of diminishing returns.

Question

The figure given below shows three Short Run Average Total Cost (SRATC) curves and the Long Run Average Total Cost (LRATC) curve of a firm.Figure 8.3
 
-In the oil tanker industry, large companies have lower risk and are able to optimize vessel utilization. If consolidation allows companies to lower their long-run average total costs, this is an example of:
A)the opportunity costs of mergers. 
B)the increase in utility of managers by being able to control larger companies. 
C)the dangers of oil tankers to the environment. 
D)the economies of scale in the oil tanker industry. 
E)the law of diminishing returns.

Quizplus · Accepted Answer

The decrease in long-run average total costs as a result of consolidation is an example of economies of scale in the oil tanker industry. Large companies can optimize vessel utilization and spread fixed costs over a larger quantity of output, leading to lower costs per unit. Therefore, option D is the correct choice. The other options are not relevant to the given scenario.

The Figure Given Below Shows Three Short Run Average Total