Question 4

4. (12 points) Consider four different types of cost curves: A. All firms experience economies of scale over a large range of output, diseconomies of scale do not set in until firms reach a very high level of output. B. All firms experience economies of scale over a small range of output, diseconomies of scale set in at a relatively low range of output. C. There are no diseconomies of scale - all firms experience economies of scale over the entire range of output. D. All firms experience economies of scale at low levels of output and diseconomies of scale at very high level levels of output. In between those two levels, there is a large range of output where long-run average total cost is constant - it is neither rising nor falling. Now consider the following industries and match them with the most likely scenario for their long-run average cost curves as described above. a. There are many small firms, each producing a small amount of output. b. There is only one firm - a monopoly - which produces all of the output. c. There are only a few very large firms, each producing a large amount of output. d. The industry has both small firms with low output and large firms with high output. Neither type of firm has a cost advantage in this industry