A manufacturing firm with a single plant is contemplating changing its plant siz
ID: 1104214 • Letter: A
Question
A manufacturing firm with a single plant is contemplating changing its plant size. It must choose from among seven alternative plant sizes. In the table, plant size A is the smallest it might build, and size G is the largest. Currently, the firm's plant size is B.
At plant size B, this firm is currently experiencing _______ of scale.
Plant Size
Average Total Cost ($)
A (smallest)
4,250
B
3,600
C
3,100
D
3,100
E
3,100
F
3,250
G (largest)
4,100
Plant Size
Average Total Cost ($)
A (smallest)
4,250
B
3,600
C
3,100
D
3,100
E
3,100
F
3,250
G (largest)
4,100
Explanation / Answer
Economies of scale.
When plant size is B, as production is increasing (with increase in plant size), average total cost is decreasing (From $4,250 to $3,500). This is the characteristic of economies of scale. The firm will experience economies of scale u to plant size D.
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