What is a firm's minimum efficient scale?
What will be an ideal response?
Minimum efficient scale is the smallest quantity of output at which long-run average cost reaches its lowest level. If the long-run average cost curve has the typical U shape, the minimum point of the LRAC identifies the level of output that represents the firm's minimum efficient scale.
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Based on the figure below. Starting from long-run equilibrium at point C, a decrease in government spending that decreases aggregate demand from AD1 to AD will lead to a short-run equilibrium at__ creating _____gap.
A. B; no output B. D; an expansionary C. B; recessionary D. D; a recessionary
When the price of penicillin tablets increases by $5 per dozen, the drug company's revenue increases by $6 million. Its elasticity of demand (in absolute terms) must be
a. zero. b. greater than one. c. less than one. d. infinitely large.
In Figure 9-13, the movement of equilibrium from point D to point C could be caused by
a. a decrease in supply from S2 to S1 in response to economic profits following a decrease in demand from D2 to D1
b. a short-run increase in supply from S1 to S2
c. an increase in supply from S1 to S2 in response to economic profits following an increase in demand from D1 to D2
d. external economies
e. in the short run, by an increase in demand from D1 to D2
Wages for some workers do fall during a recession, but it is often:
A. too small of a wage decrease to contribute to economic recovery. B. only after the worker's current contract expires. C. only after the worker receives an annual performance evaluation. D. only after the worker is fired and gets rehired elsewhere at a lower wage.