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Industry studies often suggest that firms may have long-run average cost curves that show some output range over which there are economies of scale and a wide range of output over which long-run average cost is constant: finally, at very high output, there are diseconomies of scale.1. Draw a representative long-run average cost curve, and indicate the minimum efficient scale2. Would you expect that firms in an industry like this would all produce about the same level of output? why?
Johnston production is the price taker which utilizes this cost structure in the short run:
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