Draw a graph like Figure 11-12 and insert a short-run average total cost curve corresponding to a
Question:
Draw a graph like Figure 11-12 and insert a short-run average total cost curve corresponding to a long-run output choice of 5 cases of salsa per day. Use the graph to show why Selena’s Gourmet Salsas should change its fixed cost if it expects to produce only 4 cases per day for a long period of time.
Figure 11-12:
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Step by Step Answer:
The accompanying diagram shows the longrun average total cost curve LRATC and the shortrun average total cost curve corresponding to a longrun output choice of 5 cases of salsa ATC5 The curve ATC5 shows the shortrun average total cost for which the level of fixed cost minimizes average total cost at an output of 5 cases of salsa This is confirmed by the fact that at 5 cases per day ATC5 touches LRATC the longrun average total cost curve If Selenas Gourmet Salsas expects to produce only 4 cases of salsa for a long time the firm should change its fixed cost If it does not change its fixed cost and produces 4 cases of salsa the firms average total cost in the short ...View the full answer
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