Question

3. Problems 13-10 

Consider the following table of long-run total costs for three different forms:

 Quantity FirmA Firm B Firm C 1 2 3 4 5 6 7 10 21 324354 66 80 10 15 18 23 35 50 65 10 19 28 37 46 55 60 

Indicate whether each firm experiences economies of scale or diseconomies of scale. (Note: If a firm experiences economies of scale in one region and diseconomies of scale in another, make sure to select both columns.) 

Answer 1

A firm experience economies of scale when its Production Increases and average cost Decreases and opposite of that of firm's average cost Increases aas Production Increases ,it experience dis economies of scale.

Firm A,

AC at Q=1=10

AC at Q=2. =10.5

AC at Q=3. =10.67

As PRODUCTION is Increasing, average cost is Increasing,so firm 1 is experiencing dis economies of scale.

Firm B,

AC at Q=1. =10

AC at Q=2. =7.5

AC at Q=3 =6

AC at Q=4 =5.75

AC at Q=5. =7

AC at Q=6=8.33

So as PRODUCTION Increases till q=4 , average cost Decreases but after that average cost start Increasing.

So firm B is experiencing both economies and dis economies of scale.

Firm c,

AC at Q=1=10

AC at Q=2=9.5

AC at Q=3=9.33

AC at Q=4=9.24

AC at Q=5=9.2

AC at Q=6=9.16

So as PRODUCTION Increases, average cost is decreasing so firm C is experiencing economies of scale.