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Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050

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BuyFindarrow_forward

Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050
Textbook Problem

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

  images

Does each of these firms experience economies of scale or diseconomies of scale?

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Subpart (a):

To determine
Average total cost.

Explanation

Table -1 shows the data for total cost at different output levels:

Table -1

Firm A Firm B Firm C
Quantity TC ATC TC ATC TC ATC
1 60 11 21
2 70 12 34
3 80 13 49
4 90 14 66
5 100 15 85
6 110 16 106
7 120 17.14 129

Average total cost can be calculated by using the following formula:

Average total cost=(Total costQuantity) (4)

Substitute the respective value in the equation (1) to calculate the average total cost for firm A:

Subpart (b):

To determine
Firm are economies or diseconomies of scale.

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