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Question 2 Costs per ATC, unit ATCA ATC5 $55 47 41 37 Quantity of output Suppose for the past 8 years the firm has been producing Od units per period using plant size ATC4. Now, following a permanent change in demand, it plans to cut production to Oc units. What will happen to its average cost of production? A) In the short run, its average cost falls from $47 to $41, and in the long run, average cost falls even further to $37. B) In the short run, its average cost rises from $47 to $53, and in the long run, average cost falls to $41. C) In the short run, its average cost falls from $47 to $37, and in the long run, average cost rises to $41. D) In the short run, its average cost rises from $47 to $35, and in the long run, average cost falls to $37. Answer: D