Question

Green Energy​ Inc., is a manufacturer of wind turbines. In the annual​ meeting, the directors are discussing the next​ year's operation plans. With the​ country's GDP growing at an impressive​ pace, overall energy demand is expected to increase by 10 percent annually over the next few years. Wanda​ Hill, the Director of​ Sales, claims that the firm is already enjoying economies of scale and so should install new capacity and hire more workers to expand production.​ However, Edward​ Sanchez, the Managing Director of the​ firm, is not in favor of increasing capacity. He is of the opinion that the firm is currently operating at the minimum efficient scale and any further expansion will increase costs. Which of the​ following, if​ true, will support​ Edward's view that the firm is currently operating at the minimum efficient​ scale?

Answer 1

Answer:

The correct answer is The​ firm's average cost of production remained unchanged over the last 100 units.

Explanation:

The minimum efficient scale is called the value of production for which the average long-term cost is minimal and also coincides with the marginal cost.

On the minimum efficient scale it is said that we are in the smallest possible production in which a long-term competitive company would be interested in producing. Below that value, the company would go into losses and should close.

The curve of long-term average costs is obtained from the envelope of the infinite possible curves of short-term average costs for different plant sizes, that is, for different levels of capital. From this envelope, a U-shaped average cost curve is obtained, at which minimum, precisely, the minimum efficient scale is found.