ECON 200 chapter 11: Technology, Production, and Costs

Figure 11A.6 The Expansion Path (2 of 2)

•Point C is a combination on the long-run expansion path for the firm: a curve that shows the firm's cost-minimizing combination of inputs for every level of output. •We can tell because the isocost line and isoquant are tangent at point C. •Point A minimizes costs for a lower quantity (50). •The expansion path is the set of all cost-minimizing bundle, given a particular set of input prices.

Figure 11A.6 The Expansion Path (1 of 2)

A bookcase manufacturing firm produces 75 bookcases a day, using 60 workers and 15 machines. In the short run, if the firm wants to expand production to 100 bookcases, it must do so by employing more workers only; the number of machines is fixed. Notice that there is are lower-cost combination of inputs (like point C) that would produce 100 bookcases; in the long run, the firm will switch to one of those.

Refer to the graph. From the origin up until point ​A,

A.the effect of diminishing returns is greater than the effect of specialization. B.output increases at a constant rate. C.output increases at a decreasing rate. D.output increases at an increasing rate. From point A up until point ​B, A.output increases at a decreasing rate. B.output increases at an increasing rate. C.output increases at a constant rate. D.output decreases.

Apply the Concept: Costs in the Publishing Industry (just read)

An academic book publisher turns its inputs (intellectual property, labor, printing machines, paper, factory, electricity, etc.) into its outputs (books). As it increases the number of books it publishes, some of those inputs stay constant and some rise. Can you identify which ones? Which of the following is most likely to be a fixed cost for a​ farmer? A.wages paid to farm workers B.cost of seeds C.cost of fertilizer D.insurance premiums on property Which of the following is most likely to a variable cost for a business​ firm? A.cost of shipping products B.interest on​ long-term outstanding bonds C.rent on the office building D. property taxes For Jill​ Johnson's pizza​ restaurant, explain whether each of the following is a fixed or variable cost. The payment she makes on her fire insurance policy is a fixed cost. The payment she makes to buy pizza dough is a variable cost. The wages she pays her workers is a variable cost. The lease payment she makes to her landlord who owns the building where her store is located is a fixed cost. The​ $300-per-month payment she makes to her local newspaper for running her weekly advertisements is a fixed cost.

Average Product of Labor

Another useful indication of output is the average product of labor, the total output produced by a firm divided by the quantity of workers. With 3 workers, the restaurant can produce 550 pizzas, giving an average product of labor of: 550/3 =183.3 A useful way to think about this is that the average product of labor is the average of the marginal products of labor. The first three workers give 200, 250, and 100 additional pizzas respectively: (200+250+100)/3 =183.3

Figure 11.6 The Relationship between Short-Run Average Cost and Long-Run Average Cost (1 of 3) (economies of scale)

At low quantities, a firm might experience economies of scale: the firm's long-run average costs falling as it increases the quantity of output it produces. Here, a small car factory can produce at a lower average cost than a large one, for small quantities. For more output, a larger factory is more efficient.

11.2 The Short Run and the Long Run in Economics

Economists refer to the short run: as the period of time during which at least one of a firm's inputs is fixed. Example: A firm might have a long-term lease on a factory that is too costly to get out of. In the long run: the firm can vary all of its inputs, adopt new technology, and increase or decrease the size of its physical plant. How long is the long run? It varies from firm to firm. Just think of it as "a long enough period of time that anything can be changed."

Figure 11.6 The Relationship between Short-Run Average Cost and Long-Run Average Cost (3 of 3) (diseconomies of scale)

Eventually, firms might get so large that they experience diseconomies of scale: a situation in which a firm's long-run average costs rise as the firm increases output. This might happen because the firm gets too large to manage effectively, or because the firm has to employ workers or other factors of production that are less well suited to production. 21)What is the main reason that firms eventually encounter diseconomies of scale as they keep increasing the size of their store or​ factory? E.Firms have difficulty coordinating production.

Figure 11.4 Jill Johnson's Marginal Cost and Average Cost of Producing Pizzas

Example marginal cost: Finding for Quantity of workers 3 = 2,750-2,100 (change in total cost)/550-450 (change in Quantity) = 650/100 = $6.50 We can visualize the average and marginal costs of production with a graph. The first two workers increase average production, and cause cost per unit to fall; the next four workers are less productive, resulting in high marginal costs of production. Since the average cost of production "follows" the marginal cost down and then up, this generates a U-shaped average cost curve average total cost= 2,750/550(TC/output) = 5

Figure 11A.2 An Isocost Line

For a given cost, various combinations of inputs can be purchased. The table shows combinations of ovens and workers that could be produced with $6000, if ovens cost $1000 and workers cost $500. Isocost line: All the combinations of two inputs, such as capital and labor, the have the same total cost.

Figure 11.2 Total Output and the Marginal Product of Labor (diminishing returns graph)

Graphing the output and marginal product against the number of workers allows us to see the law of diminishing returns more clearly. The output curve flattening out, and the decreasing marginal product curve, both illustrate the law of diminishing returns. To find diminishing returns find when the average product of labor declines. Example: 9/2=4.5, 17/3=5.6, 22/4=5.5, (diminishing returns)

Apply the Concept: Diseconomies of Scale at Ford Motor Company

Henry Ford is well known for his successes producing cars on an assembly line, allowing division of labor to help achieve economies of scale. Hoping to build on this, Ford built an enormous industrial complex along the River Rouge in Dearborn, Michigan, to produce the Model A. The Model A lost money for Ford, because the River Rouge complex was too large to allow efficient production, producing a disconnect between workers and management.

Figure 11A.1 Isoquants (1 of 3)

If a firm's technology allows one input to be substituted for the other in order to maintain the same level of production, then many combinations of inputs may produce the same level of output. The pizza restaurant might be able to produce 5000 pizzas with either 6 workers and 3 ovens; or 10 workers and 2 ovens. An isoquant: is a curve showing all combinations of two inputs, such as capital and labor, that will produce the same level of output.

Figure 11A.5 Changing Input Prices Affects the Cost-Minimizing Input Choice

If prices change, so does the cost-minimizing combination of capital and labor. Suppose we open a pizza franchise in China, where ovens are more expensive ($1500) and workers are cheaper ($300). The isocost lines are now flatter. To obtain the same level of production, we would substitute toward the input that is now relatively cheaper: workers.

Table 11.2 Short-Run Production and Cost at Jill Johnson's Restaurant (1 of 3)

Jill Johnson's restaurant has a particular technology by which it transforms workers and pizza ovens into pizzas. With more workers, Jill can produce more pizzas. This is the firm's production function: the relationship between the inputs employed by a firm and the maximum output it can produce with those inputs. A​ short-run production function holds constant A.the amount of capital. B.the amount of output. C.the amount of labor. D.the amounts of all inputs. Each pizza oven costs (800/2=) $400 per week, and each worker costs $650 per week. So the firm has $800 in fixed costs, and its costs go up $650 for each worker employed. Table 11.2 Short-Run Production and Cost at Jill Johnson's Restaurant (3 of 3) (next term is before this one) average total cost:If we divide the total cost of the pizzas by the number of pizzas, we get the average total costof the pizzas. ATC = TC/Output Example: 1,450(TC)/200(# of pizzas,Q) = $7.25 For low levels of production, the average cost falls as the number of pizzas rises; at higher levels, the average cost rises as the number of pizzas rises. Can find total cost by multiplying average total cost x quantity. Example 7.25x200 = 1,450 Same principle as 1,450/200 = 7.25

Production at Jill Johnson's Restaurant

Jill Johnson's restaurant turns its inputs (pizza ovens, ingredients, labor, electricity, etc.) into pizzas for sale. To make analysis simple, let's consider only two inputs: The pizza ovens, and Workers The pizza ovens will be a fixed cost; we will assume Jill cannot change (in the short run) the number of ovens she has. The workers will be a variable cost; we will assume Jill can easily change the number of workers she hires. 22)The​ short-run average cost can never be less the​ long-run average costs because Part 2 A.in the long​ run, all inputs are adjusted including the ones that are fixed in the short run. Short run costs are always more than long-run costs, short-run can't use everything efficiently, while long run has more products to average costs out.

Table 11.3 The Marginal Product of Labor at Jill Johnson's Restaurant (1 of 2)

Let's examine what happens as Jill Johnson hires more workers. To think about this, consider the marginal product of labor: the additional output a firm produces as a result of hiring one more worker. Definition from google: production involves converting inputs (natural resources, raw materials, human resources, capital) into outputs(products or services). If asked for total output and given marginal product and previous output = marginal output 6+previous output 3 = 9 The first worker increases output by 200 pizzas; the second increases output by 250. Formula marginal product of labor between 2nd and 1st worker = 250-200 = 50 (or Worker2-W1) Why do the marginal product of labor and the average product of labor curves have the shapes illustrated in the​ graph? 11) A. Whenever the marginal product of labor is less than the average product of​ labor, it pulls the average product of labor . B.The marginal product of labor initially increases due to division of labor and then decreases due to diminishing returns. C.The average product of labor equals the marginal product of labor when the marginal product of labor is at its maximum. D.Both a and b. E.All of the above. Table 11.3 The Marginal Product of Labor at Jill Johnson's Restaurant (2 of 2) Additional workers add to the potential output but not by as much. Eventually they start getting in each other's way, etc., because there is only a fixed number of pizza ovens, cash registers, etc. Law of diminishing returns: The principle that, at some point, adding more of a variable input, such as labor, to the same amount of a fixed input, such as capital, will cause the marginal product of the variable input to decline.

Interpreting the Firm's Optimality Condition

MPl/w = MPk/r At the cost-minimizing input combination, the marginal output of the last dollar spent on labor should be equal to the marginal output of the last dollar spent on capital. We could use this idea to determine whether a firm was producing efficiently or not: if an extra dollar spent on capital produced more (less) output than an extra dollar spent on labor, then the firm is not minimizing costs; it could: increase (decrease) capital, and decrease (increase) labor, maintaining the same level of output and lowering cost.

Apply the Concept: Do NFL Teams Behave Efficiently?

NFL teams face a salary cap and try to maximize wins subject to this total cost. Teams face an important choice between trying to win with veterans or rookies. If the teams are optimizing, the marginal productivity per dollar spent on each type of player should be equal. Economists Cade Massey and Richard Thaler found that teams were over-spending on high draft picks; they attributed this to NFL general managers being overconfident in their ability to spot NFL-level talent among college players.

Figure 11.5 Costs at Jill Johnson's Restaurant (1 of 2)

Observe that: In each row, ATC = AFC + AVC. When MC is below ATC, ATC is falling. When MC is above ATC, ATC is rising. The same is true for MC and AVC. (AFC decreases because dividing by the same quantity with more workers) (AVC cost change, so they follow the marginal cost curve) For Quantiy of workers 3 ATC = 2,750(TC)/550(Q) =5 AFC = 800(FC,cost of ovens)/550 (Quantity of pizza) = 1.45 AVC = 1,950(variable cost, cost of workers)/550 (Quantity of pizzas) = 3.54 MC = (2,750-2,100)/(550-450) = 650/100 = $6.50

Apply the Concept: Adam Smith and the Division of Labor in a Pin Factory

One man draws out the wire, another straightens it, a third cuts it, a fourth points it, a fifth grinds... the important business of making a pin is, in this manner, divided into eighteen distinct operations. Adam Smith in The Wealth of Nations Smith estimated a single worker could make 20 pins per day by himself; but by division of labor and specialization, workers produced on average 4,800 pins per day. Briefly explain whether you agree or disagree with the following​ argument: Adam​ Smith's idea of the gains to firms from the division of labor makes a lot of sense when the good being manufactured is something complex like automobiles or​ computers, but it​ doesn't apply in the manufacturing of less complex goods or in other sectors of the​ economy, such as retail sales. A.The argument is incorrect. Gains from division of labor will occur whenever production of a good or provision of a service has multiple tasks. B.The argument is incorrect. Gains from division of labor will only occur when all inputs are variable. C.The argument is correct. Gains from division of labor apply to complex manufacturing but not services. D.The argument is incorrrect. Gains from division of labor will always occur when more workers are added to the production process. E.The argument is correct. Gains from division of labor were only important in the eighteenth century.

Figure 11.3 Marginal and Average GPAs

Paul's semester GPA starts off poorly, rises, then eventually falls in his senior year. His cumulative GPA follows his semester GPA upward, as long as the semester GPA is higher than the cumulative GPA. When his semester GPA dips down below the cumulative GPA, the cumulative GPA starts to head down also. Sally looks at her college transcript and says to​ you, ​"How is this​ possible? My grade point average​ (GPA) for this​ semester's courses is higher than my GPA for last​ semester's courses, but my cumulative GPA still went down from last semester to this​ semester." Explain to Sally how this is possible. A.This is not​ possible, and​ Sally's cumulative GPA has been calculated incorrectly. B.Sally's GPA for this semester is lower than her cumulative GPA. C.Sally's GPA for last semester was equal to her cumulative GPA. D.Sally took more courses last semester than this semester. E.​Sally's GPA for this semester is higher than her cumulative GPA.

Explicit and Implicit Costs

Recall that economists like to consider all of the opportunity costs of an activity; both the explicit costs and the implicit costs. Explicit cost: A cost that involves spending money The explicit costs of running a firm are relatively easy to identify: just look at what the firm spends money on. Implicit cost: A nonmonetary opportunity cost The implicit costs are a little harder; finding them involves identifying the resources used in the firm that could have been used for another beneficial purpose. Example: If you own a firm, you probably spend time working on the firm's activities. Even if you don't "pay yourself" explicitly for that time, it is still an opportunity cost.

11.6 Costs in the Long Run

Recall that the long run is a sufficiently long period of time that all costs are variable. So In the long run, there is no distinction between fixed and variable costs. A long-run average cost curve:shows the lowest cost at which a firm is able to produce a given quantity of output in the long run, when no inputs are fixed.

Apply the Concept: Technological Change at Segment.com (skip if needed)

Segment.com is a San Francisco software firm. Instead of separate offices, it uses an open-office approach. Open offices often suffer from noise problems, and Segment.com was no different—except that it employed engineers who figured out the acoustics were to blame. After rearranging work areas, output increased 10-15%: a positive technological change.

Moving along an Isoquant (2 of 2)

Since we are moving along an isoquant, production stays constant. So the decrease in output from using less capital must exactly equal the increase in output from increasing labor: -Change in quantity of capital×MPk=Change in quantity of workers×MPl Rearranging this equation gives: (-Change in the quantity of capital)/(Change in the quantity of workers)=(MPl)/(MPk) The left hand side is the slope of the isoquant: the MRTS. So: MRTS=(MPl)/(MPk )

11.3 The Marginal Product of Labor and the Average Product of Labor

Suppose Jill Johnson hires just one worker; what does that worker have to do? Take orders Make and cook the pizzas Take pizzas to the tables Run the cash register, etc. By hiring another worker, these tasks could be divided up, allowing for some specialization to take place, resulting from the division of labor. Two workers can probably produce more output per worker than one worker can alone.

Table 11.1 Jill Johnson's Costs per Year (1 of 2)

Suppose Jill Johnson quits her $30,000 a year job to start a pizza store. She uses $50,000 of her savings to buy equipment—furniture, etc.—and takes out a loan as well. The first five items are explicit costs. The remaining items are implicit costs: her foregone salary, forgone interest: the interest the money could have earned... and economic depreciation: (decrease in resale value) on the capital items Jill bought.

Appendix: Using Isoquants and Isocost Lines to Understand Production and Cost

Suppose a firm has determined it wants to produce a particular level of output. What determines the cost of that output? 1)Technology:In what ways can inputs be combined to produce output? 2)Input prices: What is the cost of each input compared with the other? That is, what is the relative price of each input?

Figure 11A.4 Choosing Capital and Labor to Minimize Total Cost

Suppose the restaurant wants to produce 5000 pizzas. •Point B costs only $3000, but doesn't produce 5000 pizzas. •Points A, C, and D all produce 5000 pizzas. •Point A is the cheapest way to produce 5000 pizzas; the isocost line going through it is the lowest. Observe that at this point, the slope of the isoquant and isocost line are equal.

Moving along an Isoquant (1 of 2)

Suppose we move between two points on an isoquant, increasing labor and decreasing the capital used. When we increase labor, we increase production by the number of workers we add times their marginal production: Change in quantity of workers x MPl We can interpret the reduction in output from reducing capital in the same way: it is equal to the amount of capital we remove, times the marginal production of that capital: -Change in quantity ofcapital×MPk

Figure 11.1 Graphing Total Cost and Average Total Cost at Jill Johnson's Restaurant (2 of 2)

The "falling-then-rising" nature of average total costs results in a U-shaped average total cost curve. Our next task is to examine why we get this shape for average total costs.

11.1 Technology: An Economic Definition

The basic activity of a firm is to use inputs, for example Workers, Machines, and Natural resources to produce outputs of goods and services. We call the process by which a firm does this a technology; if a firm improves its ability to turn inputs into outputs, we refer to this as a positive technological change. Technology: The processes a firm uses to turn inputs into outputs of goods and services. Technological change: A change in the ability of a firm to produce a given level of output with a given quantity of inputs. Examples​ include: 1. The ability to produce more output using the same inputs or the same output using fewer inputs. 2.​ Alternatively, quantity of output that can be produced from a given quantity of inputs declines.

Fixed, Variable, and Total Costs

The division of time into the short and long run reveals two types of costs: Variable costs are costs that change as output changes, while Fixed costs are costs that remain constant as output changes. In the long run, all of a firm's costs are variable, since the long run is a sufficiently long time to alter the level of any input. Total cost is the cost of all the inputs a firm uses in production: Formula = Total cost = Fixed cost + variable cost TC = FC + VC

Optimality Condition for a Firm

The slope of the isocost line is the wage rate (w) divided by the rental price of capital (r). Earlier in the appendix, we showed that at the cost-minimizing point, MRTS = w/r So now we know that at the cost-minimizing point: MPl/MPk = w/r Rearranging gives us: MPl/w = MPk/r

Figure 11.5 Costs at Jill Johnson's Restaurant (2 of 2) (graph)

This results in both ATC and AVC having their U-shaped curves. The MC curve cuts through each at its minimum point, since both ATC and AVC "follow" the MC curve. Also notice that the vertical sum of the AVC and AFC curves is the ATC curve. And because AFC gets smaller, the ATC and AVC curves converge. The marginal cost curve intersects the average total cost curve at the level of output where average total cost is at a minimum because A.the firm begins experiencing diminishing returns at this quantity. B.when the marginal cost of the last unit produced is​ increasing, the marginal product of labor is at a minimum. C.the firm begins benefiting from specialization at this quantity. D.the firm begins experiencing economies of scale at this quantity. E.when the marginal cost of the last unit produced is below the​ average, it pulls the average​ down, and when the marginal cost is above the​ average, it pulls the average up. When the marginal cost of the last unit produced is below the​ average, it pulls the average​ down, and when the marginal cost is above the​ average, it pulls the average up. For​ example, if someone who is 6 feet 2 inches tall enters a room where the average height is 5 feet 9​ inches, then the average height of people in the room will increase. ​ Consequently, the marginal cost curve intersects the average total cost curve when the average total cost curve is at a minimum. 17) As the level of output​ increases, the difference between the value of average total cost and average variable cost B.decreases because average fixed cost decreases as output increases.

Table 11.4 A Summary of Definitions of Cost

Total cost: The cost of all the inputs used by a firm, or fixed cost plus variable cost= TC Fixed costs: Costs that remain constant as a firm's level of output changes FC Variable costs: Costs that change as a firm's level of output changes =VC Marginal cost=:An increase in total cost resulting from producing another unit of output = MC = Delta TC/Delta Q Average total cost: Total cost divided by the quantity of output produced = ATC = TC/Q Average fixed cost:Fixed cost divided by the quantity of output produced = AFC = FC/Q Average variable cost: Variable cost divided by the quantity of output produced = AVC = VC/Q Implicit cost:A nonmonetary opportunity cost Explicit cost:A cost that involves spending money

Figure 11.1 Graphing Total Cost and Average Total Cost at Jill Johnson's Restaurant (1 of 2)

Using the information from the table, we can graph the costs for Jill Johnson's restaurant. Notice that cost is not zero when quantity is zero, because of the fixed cost of the pizza ovens. Naturally, costs increase as Jill wants to make more pizzas.

11.4 The Relationship between Short-Run Production and Short-Run Cost

We have already seen the average total cost: total cost divided by output. We can also define marginal cost: the change in a firm's total cost from producing one more unit of a good or service: MC = Delta TC/Delta output (TC2-T1)/(Q2-Q1) = TC2 and Q2 = current quantity of workers and T1 and Q1 = previous quantity of workers) Sometimes ΔQ = 1, so we can ignore the bottom line, but don't get in the habit of doing that, or you'll make mistakes when quantity changes by more than 1 unit. Is it possible for average total cost to be decreasing over a range of output where marginal cost is​ increasing? Briefly explain. A.Yes. If marginal cost is less than average total​ cost, then average total cost will be increasing. B.Yes. If marginal cost is less than average total​ cost, then average total cost will be decreasing. C.No. If marginal cost is​ increasing, then average total cost will be increasing. D.Yes. If marginal cost is​ increasing, then average total cost will be decreasing. E.Yes. If marginal cost is less than average total​ cost, then average total cost may be increasing or decreasing. Regardless of whether marginal cost is increasing or​ decreasing, if marginal cost is below average total​ cost, then average total cost​ falls, and if marginal cost is above average total​ cost, then average total cost rises.​ Thus, marginal cost equals average total cost when average total cost is at its lowest point.

11.5 Graphing Cost Curves

We know that total costs can be divided into fixed and variable costs: TC = FC + VC Dividing both sides by output (Q) gives a useful relationship: ATC = TC / Q = FC / Q + VC / Q The first quantity is average total cost. The second is average fixed cost: fixed cost divided by the quantity of output produced. The third is average variable cost: variable cost divided by the quantity of output produced. So, ATC = AFC + AVC 18)If given output and MC, ATC, AVC, TC = ATC(64) x output(35) = 2,240 VC = AVC(48) x output(35) = 1,680 Fixed cost= 2,240-1,680 or ATC(64)-AVC(48) x output(35) = 560

Another Look at Cost Minimization

We observed that at the minimum cost level of production, the slopes of the isocost line and the isoquant were equal. Generally, writing labor as L and capital as K, we have: Slope of isoquant = -MRTS = -Pl/Pk = Slope of isocost line So at the cost-minimizing level of production,-Pl/Pk The MRTS tells us the rate at which a firm is able to substitute labor for capital, given existing technology. The slope of the isocost line tells us the rate at which a firm is able to substitute labor for capital, given current input prices. These are equal at the cost-minimizing level of production, but there is no reason they should be equal elsewhere.

Long-Run Average Cost Curves for Automobile Factories

Why might a car company experience economies of scale? Production might increase at a greater than proportional rate as inputs increase. Having more workers can allow specialization. Large firms may be able to purchase inputs at lower prices. But economies of scale will not last forever. Eventually managers may have difficulty coordinating huge operations. "Demand for... high volumes saps your energy. Over a period of time, it eroded our focus... [and] thinned out the expertise and knowledge we painstakingly built up over the years." - President of Toyota's Georgetown plant

Figure 11A.3 The Position of the Isocost Line

With more money, more inputs can be purchased. The slope of the isocost line remains constant, because it is always equal to the price of the input on the horizontal axis divided by the price of the input on the vertical axis, multiplied by −1. The slope indicates the rate at which prices allow one input to be traded for the other: here, 1 oven costs the same as 2 workers: slope = −1/2.

Average and Marginal Product of Labor

With only two workers, the average product of labor was: (200+250)/2 = 450/2 =250 So the third worker made the average product of labor go down. This happened because the third worker produced less (marginal) output than the average of the previous workers. If the next worker produces more (marginal) output than the average, then the average product will rise instead. The next slide illustrates this idea using college grade point averages (GPAs). Marginal product and average​ product: Whenever the marginal product of labor is greater than the average product of​ labor, the average product of labor must be increasing. Whenever the marginal product of labor is less than the average product of​ labor, the average product of labor must be decreasing. This is because the average product of labor equals the average of the marginal products of labor. The relationship between the marginal product of labor and the average product of labor is the same as the relationship between the marginal and average values of any variable such as your​ "marginal" GPA and your cumulative GPA.​ Therefore, since your​ "marginal" GPA will be above your cumulative​ GPA, your cumulative GPA will increase.

Figure 11A.1 Isoquants (3 of 3)

marginal rate of technical substitution (MRTS): The slope of an isoquant describes how many units of capital are required to compensate for a unit of labor, keeping production constant. Between A and B, 1 oven can compensate for 4 workers; the MRTS=1/4. Additional workers are poorer and poorer substitutes for capital, due to diminishing returns; so the MRTS gets smaller as we move along the isoquant, giving a convex shape.

Figure 11.6 The Relationship between Short-Run Average Cost and Long-Run Average Cost (2 of 3) (

minimum efficient scale:The lowest level of output at which all economies of scale are exhausted At some point, growing larger does not allow more economies of scale. The firm experiences constant returns to scale: its long-run average cost remains unchanged as it increases output. Minimum efficient scale is A.the level of output at which the long-run average cost of production no longer decreases with output . B.the level of output at which the​ long-run average cost of production begins to decline. C.the level of output at which all diseconomies of scale are exhausted. D.the level of output at which a firm begins to experience economies of scale. E.the level of output at which the marginal cost of production reaches a minimum. What is likely to happen in the long run to​ Apple's car business if the plant manufacturing its cars does not reach minimum efficient​ scale? A firm that does not reach its minimum efficient scale A.will lose money if it remains in business. B.will be experiencing constant returns to scale. C.will become a natural monopoly. D.will earn positive profits if it remains in business. E.both a and b. Constant returns to scale are reached only after all economies of scale have been exhausted. If a firm that does not reach its minimum efficient scale​ produces, then it will lose money in the long run.