Suppose in the long-run, ABC Co still have the same total cost as in the above table, does ABC’s production exhibit diseconomies of scale, economies of scale, or constant returns to scale? Explain. What is ABC’s minimum efficient scale (MES) or efficient level of production? (3 marks)
ABC’s production exhibit economies of scale (0.5 mark) and diseconomies of scale (0.5 mark) because LRATC falls and then rises. (1 mark) (Note that it is OK if students also say constant returns to scale even though we do not know whether LRATC has a flat portion.) ABC’s minimum efficient scale (MES) or efficient level of production) is 3 units. (1 mark)