Question

A manufacturing firm with a single plant is contemplating changing its plant size. It must choose from among seven alternative plant sizes. In the table, plant size $A$is the smallest it might build, and size $G$is the largest. Currently, the firm's plant size is $B$.

a. At plant site $B$, is this firm currently experiencing economies of scale or diseconomies of scale?

b. What is the firm's minimum efficient scale?

Short answer

(a) Reduction average total cost and an Increase in plant size, firm currently experiencing economies of scale.

(b) The firm's minimum efficient scale is $\$3100$

Step-by-step solution

Introduction.

Diseconomies of scale occur when a company or business grows to the point where its costs per unit increase. It occurs when a firm's economies of scale no longer function.

Find Firm currently experiencing economies of scale or diseconomies of scale (part a).

The company is benefiting from economies of scale at Plant $B$. When the average total cost is reduced, economies of scale are achieved. The average total cost at Plant $B$has decreased from $\$4,250$to $\$3,600$.

Thus, a firm is experiencing economies of scale when the average total cost is reduced and the plant size is increased.

 firm's minimum efficiency (part b).

Taking the lowest output rate into account, the minimum efficient scale is $\$3,100$.

When economies of scale end and constant parts of the economy scale begins, the minimum efficient scale is determined.