Questions: The diagram on the right shows three possible SRATC curves and an LRAC curve for a single firm producing light bulbs, where each SRATC curve is associated with a different-sized plant. a. If the firm is producing Q1 light bulbs with Plant 1, the firm's average costs are c1 b. At Q1, the firm displays costs. - increasing - constant - decreasing

The diagram on the right shows three possible SRATC curves and an LRAC curve for a single firm producing light bulbs, where each SRATC curve is associated with a different-sized plant. a. If the firm is producing Q1 light bulbs with Plant 1, the firm's average costs are c1 b. At Q1, the firm displays costs. - increasing - constant - decreasing
Transcript text: The diagram on the right shows three possible SRATC curves and an LRAC curve for a single firm producing light buibs, where each SRATC curve is associated with a different-sized plant. a. If the firm is producing $Q_{1}$ light bulbs with Plant 1 , the firm's average costs are $c_{1}$ b. At $Q_{1}$, the firm displays $\square$ costs. increasing constant decreasing
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Solution

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Solution Steps

Step 1: Locate Q1 on the graph

Q1 represents the quantity of light bulbs produced. Find Q1 on the horizontal axis.

Step 2: Identify the SRATC curve for Plant 1

The problem states the firm is using Plant 1. The corresponding short-run average total cost curve is labeled SRATC PLANT1.

Step 3: Determine the cost at Q1 for Plant 1

Trace a vertical line upwards from Q1 until it intersects the SRATC PLANT1 curve. Then, trace a horizontal line left from that intersection point to the vertical axis. This point on the vertical axis represents the average cost (C1) when producing Q1 units with Plant 1.

Step 4: Analyze the slope of SRATC PLANT1 at Q1

Observe the SRATC PLANT1 curve to the right of Q1. The curve slopes downwards, indicating that as the quantity produced increases _beyond_ Q1, the average cost decreases.

Final Answer: decreasing

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