The following graph shows the short-run average total cost curves and the long-run average total cost curve for a publishing firm. The five marked quantities indicate points of tangency between each short-run average total cost curve (SRATC) and the long-run average total cost curve (LRATC); for example, Q1 marks the point of tangency between SRATC1 and LRATC.
The orange point on SRATC3 indicates the firm's current output level in the short run (Q4).
10. Long-run cost relationships
The following graph shows the short-run average total cost curves and the long-run average total cost curve for a publishing firm. The five marked quantities indicate points of tangency between each short-run average total cost curve (SRATC
) and the long-run average total cost curve (LRATC
); for example, Q1
marks the point of tangency between SRATC1
and LRATC
.
The orange point on SRATC3
indicates the firm's current output level in the short run (Q4
).
COST PER UNIT
OUTPUT
SRATC
1
Q
1
SRATC
2
Q
2
SRATC
3
Q
3
SRATC
4
Q
4
SRATC
5
Q
5
LRATC
In the long run, if the firm decides to keep output at its initial level, what will it likely do?
A. Shift to operate on SRATC4
B. Stay on SRATC3 but decrease to the point touching LRATC
C. Shut down
D. Shift to operate on SRATC2
At which output level (or range of output levels) does the firm produce its current volume of output most efficiently?
A. 0 to Q3
B. Q2 to Q4
C. Q2
D. Q3
E. Q4
