Refer to diagram D above.A firm producing efficiently with an existing plant size represented by SATC2 finds that market demand has fallen drastically.In the short run,this plant must
A) continue to produce the same amount of output with plant size SATC2.
B) reduce its output while continuing to produce with plant size SATC2.
C) immediately switch to plant size SATC1.
D) switch to plant size SATC1 and reduce its output.
E) try to lower production costs by changing to a more efficient combination of inputs.

Question

Quizplus · Accepted Answer

In the short run, the firm cannot immediately switch to a smaller plant size (as in SATC1) as it will incur significant costs. Therefore, the best option would be to reduce its output while continuing to produce with the existing plant size (SATC2) in order to minimize losses.

Refer to Diagram D Above