What is minimum efficient scale? What is likely to happen in the long run to firms that do not reach minimum efficient scale?
What will be an ideal response?
Minimum efficient scale is the lowest level of output at which all economies of scale have been exhausted—that is, where the long-run average cost curve stops sloping downward. In the long run, firms that don't reach minimum efficient scale will have higher average costs than competitors that do reach minimum efficient scale, so they will probably be driven out of business. However, firms that justify selling at premium prices due to product differentiation can survive.
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Increasing marginal opportunity cost implies that
A) the more resources already devoted to any activity, the payoff from allocating yet more resources to that activity increases by progressively smaller amounts. B) the more resources already devoted to any activity, the benefits from allocating yet more resources to that activity decreases by progressively larger amounts. C) that rising opportunity costs makes it inefficient to produce beyond a certain quantity. D) the law of scarcity.
Suppose the marginal physical product of labor at a shoe string factory is 1,500 shoestrings per hour at 80 hours, 1,200 per hour shoestrings at 90 hours, 800 shoestrings per at 100 hours, and 300 shoestrings per hour at 110 hours. If a shoestring maker’s wages are $60 per hour and each string sells for $0.05. What is the optimal use of labor for making shoestrings?
A. 80 hours B. 90 hours C. 100 hours D. 110 hours