The figure below shows a family of cost curves for a firm. The subscripts 1, 2, and 3 for the SRATC curves refer to different plant sizes.
FIGURE 8-2
Refer to Figure 8-2. Suppose this firm is producing at point B. Why might this firm continue to produce at point B, rather than immediately move to point C and produce the same level of output (Q2), at a lower cost?
◦ The firm may choose to remain at point B until the price of its output increases enough to justify building a new plant.
◦ The firm cannot produce at point C because there is no SRATC curve through this point.
◦ If this firm continues to produce at point B for any period of time, it must be because it is not profit-maximizing.
◦ There can be a significant time delay while the firm readjusts its plant size, during which time it remains at point B.
◦ If this firm continues to produce at point B for any period of time, it must be because it is not cost-minimizing.
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Typical Startup Cost Categories Cont.