Exhibit 12 displays the long-run average total cost curve (LRAC_US) and the short-run average total cost curves for three hypothetical US-based automobile manufacturers—Starr Vehicles (Starr), Rocket Sports Cars (Rocket), and General Auto (GenAuto). The LRAC curve for foreign-owned automobile companies that compete in the US auto market (LRAC_foreign) is also indicated in the graph. (The market structure implicit in the exhibit is imperfect competition.)

To what extent are the cost relationships depicted in Exhibit 12 useful for an economic and financial analysis of the three US-based auto firms? 

 

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Exhibit 12: Long-Run Average Total Cost Curves for Three Auto Manufacturers Cost Per Unit 20 Starr Rocket GenAuto LRAC LRAC foreign Quantity of Output