You work for a company that is being accused of monopoly behavior, given its large size. Comparisons are made to the industry standard, where each establishment has on average about 16.2 employees. Your company is bigger than that, but you want to provide evidence against the monopoly charges.
You’ve collected data at different times in your company’s history, when you had different amounts of capital.
In 2003, SRATC = 2.5Q2 – 61Q + 480
In 2008, SRATC = 2.5Q2 – 16Q + 150
In 2014, SRATC = 2.5Q2 – 40Q + 250
After plotting these three different SRATC curves (have Q go from 0 to 20), Make another column labeled “LRATC” that includes three points: 2008’s SRATC when Q = 1; 2014’s SRATC when Q = 8, and 2003’s SRATC when Q = 15. Plot a 2nd-degree polynomial trendline to represent your company’s LRATC.
In a more competitive industry with smaller firms, typical LRATC curves follow LRATC = 6Q2 – 36Q + 147. Using all available information in this question, which would be a good argument that could be used to justify your company’s size?
Select one:
a. While our costs are higher than competitive firms, we are actually smaller in scale than they are. The total cost (high per unit cost but low output) for our firm is actually less than for smaller firms.
b. Even though the LRATC curves look different, the minimum points, and the optimal output associated with them, are actually equivalent. Thus, there is no qualitative difference between our firm's efficiency and that of smaller firms.
c. Smaller firms have their minimum average total cost at a low amount of output, but our minimum average total cost is actually slightly lower than theirs, even though it occurs at a higher amount of output.
d. Our firm's costs may be higher than smaller firms, but our optimal output far exceeds theirs. The improvement in volume compensates for the slightly higher costs.