1 The short-run average total cost curve and the long-run average total cost curve are similarly...

1 The short-run average total cost curve and the long-run average total cost curve are similarly shaped. What are the causes for the short run and long-run average total cost curve to slope down and up?

2 Mr. Salim has been working at a car manufacturing plant forthe last 4 years. He recently lost his job due to the downsizing of the company he works for due topoor car sales and poor economic performance. What type of unemployment is Salim forced into? Justify your answer.

Solutions

Expert Solution

Short run:

As fixed factors of a firm remain the same, the output changes due to the variable factors such as raw material, labor, etc

As the fixed cost gets distributed over the output as production is expanded, the average total cost in the short run goes downward sloping and reaches a minimum which is the optimal scale of operation. If a firm in the short-run increases its level of output with the same fixed plant; the economies of that scale of production change into diseconomies and thus average cost increases leading the curve to be sloping upward.

Long run:

The reason for the up and down is same in case of long run curve as well, except the fact that all costs are variable in this case, i.e. no fixed costs. Hence the curve is a bit flatter in comparison to Short run.

Frictional unemployment. Usually this type of unemployment occurs when the workers are non-voluntarily laid off due to plant closure, etc like with the case of Mr. Salim.

Hope this helps. Do hit the thumbs up. Cheers!

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

How can the long-run average cost (LRAC) curve be derived from the short-run average total cost...

How can the long-run average cost (LRAC) curve be derived from the short-run average total cost (SRATC) curve?

How can the long-run average cost (LRAC) curve be derived from the short-run average total cost...

How can the long-run average cost (LRAC) curve be derived from the short-run average total cost (SRATC) curve? Describe economies of scale and diseconomies of scale. What are the determinants of economies of scale and diseconomies of scale, respectively? Using a real-world company (other than Sysco), explain the causes of economies of scale for your company. How would economies of scale help your company compete in its industry?

Describe how the long run average cost curve is an envelope of short run average cost...

Describe how the long run average cost curve is an envelope of short run average cost curves.

Draw a long run average cost curve, as well as several short run average cost curves...

Draw a long run average cost curve, as well as several short run average cost curves if the firm has increasing economies of scale followed by decreasing economies of scale.

1. When the short-run marginal cost curve is upward-sloping, The average total cost curve is upward-sloping...

1. When the short-run marginal cost curve is upward-sloping, The average total cost curve is upward-sloping There are diseconomies of scale. The average total cost curve is above the marginal cost curve. Diminishing returns occurs with greater output. 2. Marginal revenue is the change in Group of answer choices Average revenue when output is changed. Average revenue when price is changed. Total revenue when output is changed. Total revenue when price is changed. 3.The shutdown point occurs where price equals...

1.) Economies of scale refer to A.) the minimum point on the short-run average total cost curve...

1.) Economies of scale refer to A.) the minimum point on the short-run average total cost curve B.) the flat portion of the long-run average total cost curve. C.) a decrease in the long-run average total cost of production as output increases. D.) a and b E.) none of the above . 2.) Minimum efficient scale refers to the A.) minimum size plant in any given industry B.) minimum point on the short-run average total cost curve C.) output level when...

Why is the long-run average total cost (LRATC) curve called the planning curve? Illustrate.

1. The long run average total cost shows what happens to average (per unit) total cost...

1. The long run average total cost shows what happens to average (per unit) total cost as a firm grows in size (adds more capital or increases its plant size). True or false? 2. In the short run, at least one input is variable and one input is fixed. True or false? 3. If marginal product is less than average product, average product must be falling. True or false? 4. In the long run, all inputs are variable. True or...

Question 2 : A) The long-run average total cost curve shows: Select one: a. the plant...

Question 2 : A) The long-run average total cost curve shows: Select one: a. the plant size or scale that the firm should build. b. the average total cost of producing where diminishing returns are not present. c. the lowest average total cost of producing every level of output in the long run. d. where the most profitable level of output occurs. B) The minimum efficient scale is the: Select one: a. smallest output level where fixed costs are minimised....

In the long run, all costs are variable. Diagram and explain the long-run average cost curve...

In the long run, all costs are variable. Diagram and explain the long-run average cost curve and what it means to have (i) economies of scale, (ii) diseconomies of scale, and (iii) constants costs. What factors contribute to these economies and diseconomies?

Subjects