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 SRATC2
indicates the firm's current output level in the short run (Q1
).
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?

Shut down
Shift to operate on SRATC1
Stay on SRATC2
but increase to the point touching LRATC
Shift to operate on SRATC4
Over which range of output levels do you find diseconomies of scale?

0 to Q1
0 to Q3
Greater than Q3
0 to Q5
Q2
to Q4

### 1. **In the long run, if the firm decides to keep output at its initial level, what will it likely do?**

Since the firm is currently producing at the output level \( Q_1 \), which is the point where **SRATC2** is tangent to the **LRATC** curve, the firm is not operating at the most efficient point in the long run. In the long run, the firm will have flexibility to adjust both its scale and other inputs.

At \( Q_1 \), the firm is currently below the optimal point for SRATC2. To optimize, the firm will likely adjust its inputs to match the **LRATC** curve. Since \( Q_1 \) is the output level where **SRATC1** is tangent to **LRATC**, in the long run, the firm will likely shift its production to the **SRATC1** curve, ensuring it operates at the optimal efficiency. This would reduce costs.

- **Answer: Shift to operate on SRATC1.**

### 2. **Over which range of output levels do you find diseconomies of scale?**

Diseconomies of scale occur when increasing output leads to a rise in the average total cost. In this graph, this happens after the point of **minimum LRATC**, as increasing production beyond this point will increase costs per unit.

- If you look at the graph, **Q3** appears to be the point of minimum LRATC, meaning any output beyond this point (greater than \( Q_3 \)) will be associated with rising average costs, indicating diseconomies of scale.

- **Answer: Greater than Q3.**

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Do you want more details on the concepts of short-run vs. long-run costs or diseconomies of scale?

### Relative questions:
1. How does the firm’s decision in the short run differ from its decision in the long run?
2. What are economies of scale, and how do they compare to diseconomies of scale?
3. How does the firm know when it's operating at the most efficient scale in the long run?
4. How can a firm reduce costs by shifting from one SRATC curve to another?
5. What role do fixed and variable costs play in shaping the SRATC curves?

### Tip:
In the long run, firms can adjust all inputs, while in the short run, at least one input (like capital) is fixed, limiting the firm's flexibility.

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 SRATC2 indicates the firm's current output level in the short run (Q1). In the long run, if the firm decides to keep output at its initial level, what will it likely do? Over which range of output levels do you find diseconomies of scale?

Explore how the short-run average total cost (SRATC) and long-run average total cost (LRATC) curves interact for a publishing firm. Learn why the firm would likely shift to SRATC1 in the long run and identify the output range over which diseconomies of scale occur. Suitable for college-level economics students.

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