Question 1. Industry studies often suggest that firms may have long-run average cost curves that show some output range over which there are economics of scale and a wide range of output over which long run average cost is constant; finally, at very high output there are diseconomics of scale
a. Draw a representative long run average cost curve and indicate the minimum efficient scale
b. Would you expect that firms in an industry like this would all produce about the same level of output? Why?
Question 2. Each of the following statements describes a market structure. What would you expect the long run average cost curve to look like for a representative firm in each industry? Graph the curve, and indicate the minimum efficient scale (MES)
a. There are a few large firms in the industry
b. There are many firms in the industry, each relative to the size of the market
Question 3. For each of the following technologies, graph a representative set of isoquants
a. Every worker requires exactly one machine to work with, no substitution is possible
b. Capital and labor are perfect substitutes
c. The firm is able to substitute capital for labor, but they are not perfect substitutes