Question

Chloe’s Café sells gourmet cinnamon rolls. In the long run, the café incurs a total cost of $500 to produce 1,000 cinnamon rolls. If Chloe’s Café exhibits economies of scale between 1,000 and 2,000 cinnamon rolls, the long-run average total cost for 1,500 cinnamon rolls is a. ​lower than $0.50. b. ​higher than $500. c. ​higher than $0.50. d. ​equal to $0.50.

Answer 1

Answer:

a. ​lower than $0.50

Explanation:

As there is economies of scale, the cost per unit will decrease as the output increase. Because the cost for 1,000 units already is 0.50 per unit at a higher level of output 1,500 in this case; the cost per unit is forced to be lower to make the statement of economy of scale true.