Suppose that Jill Johnson has to choose between building a smaller restaurant and a larger restaurant. In the graph below, the relationship between costs and output for the smaller restaurant is represented by the curve ATC1, and the relationship between costs and output for the larger restaurant is represented by the curve ATC2.

a. If Jill expects to produce 5,100 pizzas per week, should she build a smaller restaurant or a larger restaurant? Briefly explain.
b. If Jill expects to produce 6,000 pizzas per week, should she build a smaller restaurant or a larger restaurant? Briefly explain.
c. A student asks, "If the average cost of producing pizzas is lower in the larger restaurant when Jill produces 7,500 pizzas per week, why isn't it also lower when Jill produces 5,200 pizzas per week?" Give a brief answer to the student's question.

Transcribed Image Text:

Average total cost ATC, (dollars per pizza) ATC2 7,500 Quantity (pizzas per week) 5,000 5,200 5,500