Q1) If the firm’s average cost curves are U-shaped, why does its average variable cost curve achieve its minimum at a lower level of output than the average total cost curve? Q2) Distinguish between economies of scale and economies of scope. Why can one be present without the other? Q3) A chair manufacturer hires its assembly-line labor for $30 an hour and calculates that the rental cost of its machinery is $15 per hour. Suppose that a chair can be produced using 4 hours of labor or machinery in any combination. If the firm is currently using 3 hours of labor for each hour of machine time, is it minimizing its costs of production? If so, why? If not, how can it improve the situation? Graphically illustrate the isoquant and the two isocost lines for the current combination of labor and capital and for the optimal combination of labor and capital. Q4) If a firm enjoys economies of sca
Q1) If the firm’s average cost curves are U-shaped, why does its average variable cost curve achieve its minimum at a lower level of output than the average total cost…
