In Figure E.4.1, we see the long-run average cost for the production of a good, LRAC.
a) In the short run, capital is a fixed cost. Draw, for a few different values of K, what the short-run average cost, SRAC, looks like in relation to the long-run average cost.
b) Sometimes, one talks of (dis-) economies of scale. What in the graph indicates whether we have economies or diseconomies of scale?
