Answer :
at an output level of 35, the firm is facing diseconomies of scale because its AC(q) is increasing and its MC(q) is greater than AC(q). This implies that the firm is experiencing diminishing returns to scale as it increases its production levels.
a) The firm's AC(q) function is in output increasing at this level of output (q=35).AC or average cost is the cost per unit of output produced by the firm.
It is calculated by dividing the total cost of production by the number of units produced. Hence, AC(q) = TC(q) / q.At an output level of 35, the firm's AC(q) is calculated as follows:AC(q=35) = TC(q=35) / q= (400 + 38*35 + 0.5*(35^2))/35= 1353.5/35= $38.67As the firm's MC is greater than AC, it implies that AC is rising.
Therefore, the firm's AC(q) function is in output increasing at this level of output (q=35).b) The firm faces diseconomies of scale.Diseconomies of scale refer to the situation where an increase in the scale of production causes the average cost of production to increase as well.
In this case, the firm's total cost function is TC = 400 + 38q + 0.5q^2, where q represents the units of output. Given that the firm is producing 35 units of output, the average cost of production is $38.67, and the marginal cost of production is $73.
Therefore, at an output level of 35, the firm is facing diseconomies of scale because its AC(q) is increasing and its MC(q) is greater than AC(q). This implies that the firm is experiencing diminishing returns to scale as it increases its production levels.
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