The figure below shows a family of cost curves for a firm. The subscripts 1, 2, and 3 for the SRATC curves refer to different plant sizes. FIGURE 8- 3
-Refer to Figure 8- 3. Should this firm ever consider moving from point E (output level Q3 on SRATC2) to point F (output level Q5 on SRATC3)?
A) Yes, because the firm can take advantage of economies of scale.
B) Yes, if the product price rises enough to lead the firm to expand to plant size 3.
C) No, because they are already producing at their lowest possible cost at point E.
D) No, because producing at point F implies a higher cost per unit of output.
E) Yes, because SRATC3 is the optimal plant size for this firm.

Question

The figure below shows a family of cost curves for a firm. The subscripts 1, 2, and 3 for the SRATC curves refer to different plant sizes.  FIGURE 8- 3
-Refer to Figure 8- 3. Should this firm ever consider moving from point E (output level Q3 on SRATC2) to point F (output level Q5 on SRATC3)?
A) Yes, because the firm can take advantage of economies of scale. 
B) Yes, if the product price rises enough to lead the firm to expand to plant size 3. 
C) No, because they are already producing at their lowest possible cost at point E. 
D) No, because producing at point F implies a higher cost per unit of output. 
E) Yes, because SRATC3 is the optimal plant size for this firm.

Quizplus · Accepted Answer

Moving from point E to point F would require the firm to expand to plant size 3, which may only be economically feasible if the product price rises enough to justify the increased production costs. Therefore, the best answer is B. Choices A, C, D, and E are incorrect because they do not accurately reflect the potential costs and benefits of moving from point E to point F.

The Figure Below Shows a Family of Cost Curves for a Firm