Question 2
NECO
•
2018
•
ECONOMICS
•
objective
A textile firm has the following total‑cost data: \(Q=0\) units, \(TC=150\); \(Q=10\) units, \(TC=250\); \(Q=20\) units, \(TC=380\); \(Q=30\) units, \(TC=540\); \(Q=40\) units, \(TC=740\). (a) Compute average total cost (ATC) and marginal cost (MC) for each output level. (b) Identify the range of output where the firm experiences economies of scale. (c) If the market price is \(25\) per unit, should the firm increase output beyond \(30\) units? Justify your answer.
Answer Options
A.
ATC: Q=10 →25, Q=20 →19, Q=30 →18, Q=40 →18.5; MC: Q=10 →9, Q=20 →12, Q=30 →15, Q=40 →19; economies of scale up to 30 units; since price (25) > MC at 30 (15), the firm should increase output beyond 30 units, but only if MC remains below price.
Correct Answer
B.
ATC: Q=10 →25, Q=20 →19, Q=30 →18, Q=40 →18.5; MC: Q=10 →10, Q=20 →13, Q=30 →16, Q=40 →20; economies of scale up to 30 units; since price (25) > MC at 30 (16), the firm should increase output beyond 30 units.
C.
ATC: Q=10 →24, Q=20 →20, Q=30 →19, Q=40 →19.5; MC: Q=10 →11, Q=20 →14, Q=30 →17, Q=40 →21; economies of scale up to 20 units; since price (25) > MC at 30 (17), the firm should not increase output beyond 30 units.
D.
ATC: Q=10 →26, Q=20 →21, Q=30 →19, Q=40 →20; MC: Q=10 →13, Q=20 →16, Q=30 →19, Q=40 →23; economies of scale up to 40 units; since price (25) > MC at 30 (19), the firm should increase output beyond 30 units.
Correct Answer
B
Correct Option:
ATC: Q=10 →25, Q=20 →19, Q=30 →18, Q=40 →18.5; MC: Q=10 →10, Q=20 →13, Q=30 →16, Q=40 →20; economies of scale up to 30 units; since price (25) > MC at 30 (16), the firm should increase output beyond 30 units.
About This Question
This is
Neco
2018
Economics
Question 2.
It is one of the
objective
questions from the
2018
Neco
Economics
examination.
Difficulty level:
Hard
.