The efficient scale of the firm is the quantity of output that
A)maximizes marginal product.
B)maximizes profit.
C)minimizes average total cost.
D)minimizes average variable cost.

Question

Quizplus · Accepted Answer

The efficient scale of the firm is where it produces at the minimum average total cost. Beyond the efficient scale, as output increases, the average total cost starts rising due to diminishing returns to scale. Therefore, the firm should produce at the quantity where average total cost is minimized, which is the efficient scale. Maximizing marginal product (A) or profit (B) may not necessarily lead to the most efficient level of production. Minimizing average variable cost (D) may not ensure that the firm is producing at the lowest possible cost.

The Efficient Scale of the Firm Is the Quantity of Output