Chapter 3 Tutorial 2

1. The SRMC will always equal the LRMC at the point of minimum SRAC, when there are constant returns to scale. True or False. Explain.

2. SRMC will always equal LRMC at a level of output lower than LRAC whenever the production technology exhibits diminishing returns to scale. True or False. Explain. Click To Download C3T2 Question 2 Answer

3. The SRMC schedule will never intersect the LRMC schedule if the cost function exhibits increasing returns to scale everywhere. True or False? Explain.

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3 Comments

  1. ella says:

    hi,

    Got a bit confussed with this question: does LRMC need to bew below the LRAC? Also,the questions sais that the SRMC will never intersecty the LRMC, did we actully show that?

    thank you in advance.

    Ella

    • Quickienomics says:

      Hi Ella,

      Could you please specify which question you are referring to? It actually depends on whether it is increasing or decreasing returns to scale that determines which curve is on top.

      For your second question, you have to show it by drawing both curves. I only showed the long run. Try to draw the SRTC and see whether the curves intersect.

  2. Ella says:

    Hi,

    I am refereing to question 3.

    Thanks.

    Ella