Order 1369245: Long Run Average Cost
The given information:
1. The firm is currently operating, using a specific plant size.
2. It plans to make a new investment by moving to another larger size plant.
3. There is no restriction on (1) the availability of the project funding, or (2) the size of the market demand for the prospective product.
4. The firm will be using the same technology.
The question in hand:
The question is whether (1) to move to a larger size plant, or (2) to keep the current plant and invest in an additional plant with a similar size. In terms of our knowledge of chapters 6 and 7, the question is whether the firm is operating now on the falling segment of its LRAC (Long Run Average Cost), i.e. IRS (Internal Revenue Service), or on the flat segment of its LRAC, i.e. CRS ().
Please advise the firm to reach the right decision.