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5,000

10,000 Units of output

15,000

20,000

less than the specified output is produced (in this case 5,000 units), unit production costs rise rapidly. Plant B, on the other hand, is more flexible. Output can be expanded or contracted without excessive cost penalties, but unit costs are not as low as those of plant A at the optimal output level. These two cases are shown in Figure 8.9.

Plant A is more efficient than plant B between 4,500 and 5,500 units of output; outside this range, B has lower costs. Which plant should be selected? The answer depends on the level and

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