Question

4) It's time for a beer (question). The graphic below depicts the minimum efficient scales of the U.S. beer-brewing industry for the years 1950 and 2000, as well as the implied long-run average total cost (LRATC) curve. On the graph, sketch reasonable U-shaped SHORT-RUN ATC curves for brewers in the years 1950 and 2000. Average cost of production, various brewers, 2000 160 Minimum Efficient Scale (MES) 140 Long-run ATC Cost per barrel (2000$ MES, 1950 100.000 bls MES, 2000 18 million 100000 100 1000 10000 Barrels of Beer (in thousands)

Answer 1

the short run average total cost curve has the U shape because of diminishing marginal product.Diminishing marginal product means that there are diminishing returns from the variable input in the short run remember that in the short run,at least one input in production is fixed.