3. Problem: \"Economies of Scale” (9 points) Please use the data below to answer
ID: 1190364 • Letter: 3
Question
3. Problem: "Economies of Scale” (9 points)
Please use the data below to answer the following questions:
Q
LRATC
0
$120
10
$107
20
$95
30
$85
40
$76
50
$69
60
$63
70
$60
80
$60
90
$60
100
$60
110
$60
120
$61
130
$64
140
$68
150
$75
160
$83
170
$94
180
$109
a). Construct a graph for the long run average total cost (LRATC). Use the quantity (Q) data for the X-axis.
b). Over what range of output does this firm experience: (a) economies of scale; (b) constant returns; and (c) diseconomies of scale?
Q
LRATC
0
$120
10
$107
20
$95
30
$85
40
$76
50
$69
60
$63
70
$60
80
$60
90
$60
100
$60
110
$60
120
$61
130
$64
140
$68
150
$75
160
$83
170
$94
180
$109
Explanation / Answer
a) The following figure plots LRATC vis-a-vis Quantity, such that the horizontal axis represents quantity and the vertical axis represents LRATC.
b)
The firm experiences economies of scale for the output range 0-70, as firm's LRATC falls over this range.
The firm experiences constant returns for the output range 70-110, as firm's LRATC stays constant over this range.
The firm experiences diseconomies of scale for the output range 110-180, as firm's LRATC rises over this range.
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