May/June 2026 Paper 32

2026 · 30 questions · 30 parts · 30 marks

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3Economies ScaleMedium1 mark
A firm is located in an industrial area of a city. The diagram shows the average total cost (ATC) curves for this firm. The firm is initially producing on at an output of .
average total cost diagram with two U-shaped curves, ATC1 (upper) and ATC2 (lower), plotted against quantity on the horizontal axis and costs on the vertical axis; dashed lines mark C1 as the height of ATC1 at output Q1, C2 as the minimum point of ATC1 (at output Q2), C3 as the height of ATC2 at output Q1, and C4 as the minimum point of ATC2 (also at output Q2)
What is the most likely effect of improved transport infrastructure to this industrial area on the firm’s average total costs?