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. Each of the three SRATC curves shows
A) the output that is possible when all factors of production are fixed.
B) the lowest cost attainable, given that the plant size is the largest it can possibly be.
C) the lowest cost attainable, holding the plant size constant.
D) optimal plant sizes in the long run.
E) technically inefficient methods of production, given that they lie above the LRAC.

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. Each of the three SRATC curves shows
A) the output that is possible when all factors of production are fixed. 
B) the lowest cost attainable, given that the plant size is the largest it can possibly be. 
C) the lowest cost attainable, holding the plant size constant. 
D) optimal plant sizes in the long run. 
E) technically inefficient methods of production, given that they lie above the LRAC.

Quizplus · Accepted Answer

The SRATC curves show the lowest cost attainable while holding plant size constant. This means that for each respective plant size (represented by the subscript), the curve shows the minimum cost that can be achieved at each level of output. The LRAC (long run average cost) curve would show the optimal plant sizes in the long run, but that curve is not shown in this figure. Option A is incorrect because the SRATC curves assume that at least one factor of production is variable. Option B is incorrect because the curves do not necessarily represent the lowest cost attainable overall, just the lowest cost given a specific plant size. Option E is incorrect because the curves are not necessarily technically inefficient, they just represent higher costs than the LRAC curve.

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