If a firm experiences economies of scale as it expands production, then:
a. it is not subject to diminishing returns.
b. its marginal cost curve will be downward sloping in that range.
c. its marginal product curve will be downward sloping in that range.
d. its long-run average total cost curve will be downward sloping in that range.
Ans: d. its long-run average total cost curve will be downward sloping in that range.
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The owner of Tie-Dyed T-shirts, a perfectly competitive firm, has hired you to give him some economic advice. He has told you that the market price for his shirts is $20 and that he is currently producing 200 shirts at an AVC of $15 and an ATC of $25. You tell him he should continue to operate in the short run because
A. he has to pay his fixed costs of $2,000 if he shuts down, which is greater than his loss when he operates. B. he is earning positive economic profits of $4,000. C. his loss from operating is only $2,000, which is less than his loss if he shuts down. D. In fact you do not tell him to operate-he should shut down since he has a loss.