Question 1

The River Rouge plant was built by the Ford Motor Company in the 1920s to produce the company's Model A car. Which of the following is evidence that the River Rouge plant suffered from diseconomies of scale?

Accepted Answer

The fact that Ford eventually constructed smaller plants to make the Model A at a lower average cost is evidence that the River Rouge plant suffered from diseconomies of scale. This means that as output increased, the average cost of production also increased, making it more costly than smaller plants to produce the same amount of goods.

Question 2

Figure 11-11 Figure 11-11 illustrates the long-run average cost curve for a firm that produces picture frames. The graph also includes short-run average cost curves for three firm sizes: ATCS1U1B1aS1U1B0, ATCS1U1B1bS1U1B0 and ATCS1U1B1cS1U1B0. -Refer to Figure 11-11. If the firm chooses to produce and sell 25,000 frames per month by operating in the short run with a scale operation represented by ATC_c

Accepted Answer

The answer of Figure 11-11  Figure 11-11 illustrates the...

Question 3

Minimum efficient scale is defined as the level of output at which

Accepted Answer

The answer of Minimum efficient scale is defined as the...

Question 4

Figure 11-11  Figure 11-11 illustrates the long-run average cost curve for a firm that produces picture frames. The graph also includes short-run average cost curves for three firm sizes: ATCS1U1B1aS1U1B0, ATCS1U1B1bS1U1B0 and ATCS1U1B1cS1U1B0.
-Refer to Figure 11-11. For output rates greater than 20,000 picture frames per month

Accepted Answer

The long-run average cost curve is upward sloping beyond an output rate of 20,000 picture frames per month, indicating diseconomies of scale. This means that the firm's costs per unit will increase as it tries to produce more output.

Question 5

Table 11-8
  Elegant Settings manufactures stainless steel cutlery. Table 11-8 shows the company's cost data.
-Refer to Table 11-8. Elegant Settings experiences

Accepted Answer

The data shows that the average cost per unit decreases as output increases up to 300, indicating economies of scale. However, the average cost per unit increases as output increases beyond 400, indicating diseconomies of scale. Therefore, Elegant Settings experiences economies of scale at an output of 300 or less and diseconomies of scale at an output level above 400.

Question 6

If the long-run average total cost curve is downward-sloping, then the firm is experiencing decreasing returns to scale.

Accepted Answer

If the long-run average total cost curve is downward-sloping, then the firm is experiencing increasing returns to scale. This means that as the firm expands its production, the average total cost per unit decreases.

Question 7

Which of the following is not a reason why firms experience economies of scale?

Accepted Answer

Difficulty coordinating the operations of the firm as output increases is actually a reason why firms might experience diseconomies of scale, not economies of scale. The other options listed are valid reasons why firms might experience economies of scale.

Question 8

Diseconomies of scale occur when

Accepted Answer

Diseconomies of scale occur when the cost per unit of output increases as a firm expands its output in the long-run. This can be due to factors such as increased communication and coordination costs, more difficult management oversight, or bottlenecks in production processes.

Question 9

Figure 11-11  Figure 11-11 illustrates the long-run average cost curve for a firm that produces picture frames. The graph also includes short-run average cost curves for three firm sizes: ATCS1U1B1aS1U1B0, ATCS1U1B1bS1U1B0 and ATCS1U1B1cS1U1B0.
-Refer to Figure 11-11. In the short run, if the firm sells fewer than 5,000 picture frames per month

Accepted Answer

In the short run, the firm should produce with the scale of operation associated with ATC_a because it represents the lowest average total cost for producing fewer than 5,000 picture frames per month.

Question 10

Assume that you observe the long-run average cost curve of ACME Bookstores, a national chain. Starting from the point on the curve where output is zero and moving to the right, which of the following lists the behavior of long-run average costs in the correct sequence (that is, which will be observed first, second, etc.)?

Accepted Answer

Starting from the point of zero output, economies of scale will be observed first as the firm increases production and benefits from specialization and reduced average costs due to a larger scale of operations. Next, the firm will reach the minimum efficient scale, beyond which any further increase in production will lead to rising long-run average costs due to increased coordination, communication, and other difficulties associated with managing a larger operation. This represents the peak of the long-run average cost curve. After the minimum efficient scale, the firm will experience constant returns to scale, where average costs remain constant as output increases. Finally, the firm will enter the range of diseconomies of scale, where average costs start to rise again as the firm becomes too large to manage efficiently and faces increasing coordination costs.

Question 11

In the long run the relevant cost is total cost.

Accepted Answer

In the long run, all costs are considered relevant, including fixed costs, variable costs, and opportunity costs, therefore the total cost is the most important relevant cost.

Question 12

Figure 11-11  Figure 11-11 illustrates the long-run average cost curve for a firm that produces picture frames. The graph also includes short-run average cost curves for three firm sizes: ATCS1U1B1aS1U1B0, ATCS1U1B1bS1U1B0 and ATCS1U1B1cS1U1B0.
-Refer to Figure 11-11. Constant returns to scale

Accepted Answer

The answer of Figure 11-11  Figure 11-11 illustrates the...

Question 13

Which of the following statements explains the difference between diminishing returns and diseconomies of scale?

Accepted Answer

The answer of Which of the following statements explains the...

Question 14

A curve showing the lowest cost at which a firm is able to produce a given level of output in the long run is

Accepted Answer

The long-run average total cost curve (LRATC) shows the minimum average total cost at which a firm can produce a given level of output in the long run. This includes all inputs being variable and the firm being able to choose the most efficient production techniques. The LRATC curve is U-shaped, representing the tradeoff between economies of scale and diseconomies of scale. At low levels of output, the firm experiences increasing returns to scale, leading to lower average costs. At higher levels of output, the firm experiences diminishing returns to scale, leading to higher average costs. The minimum point of the LRATC curve represents the point of optimal efficiency, also known as the minimum efficient scale.

Question 15

Figure 11-11  Figure 11-11 illustrates the long-run average cost curve for a firm that produces picture frames. The graph also includes short-run average cost curves for three firm sizes: ATCS1U1B1aS1U1B0, ATCS1U1B1bS1U1B0 and ATCS1U1B1cS1U1B0.
-Refer to Figure 11-11. The minimum efficient scale of output is reached at what rate of output?

Accepted Answer

The minimum efficient scale of output is where the LRAC curve is at its lowest point. In this graph, it appears to be at a rate of output of around 10,000 picture frames. Therefore, the best choice is D.

Question 16

The level of output at which all economies of scale have been exhausted is known as

Accepted Answer

Minimum efficient scale is the level of output at which all economies of scale have been exhausted. At this level, the firm is producing at the lowest possible average total cost. Therefore, it is the point at which the firm is most efficient in terms of production costs.

Question 17

Table 11-8
  Elegant Settings manufactures stainless steel cutlery. Table 11-8 shows the company's cost data.
-Refer to Table 11-8. What is the minimum efficient scale of production?

Accepted Answer

The minimum efficient scale of production is the quantity of output at which long-run average total cost is minimized. In Table 11-8, we can see that the long-run average total cost is minimized at a production level of 300 units. Any production level above or below 300 units will result in higher average total cost, indicating that 300 units is the best choice for Elegant Settings.

Question 18

If an airport decides to expand by building an additional passenger terminal, and in doing so it lowers its average cost per airplane landing, then the expansion would provide ________ to the airlines.

Accepted Answer

The expansion of the airport and the lowering of the average cost per airplane landing indicates that the airport is experiencing economies of scale. This means that as the airport expands and handles more passengers and airplanes, the cost per unit (airplane landing) decreases, which benefits the airlines.

Question 19

Two stores-Lazy Guys and Ralph's Recliners-are located in the same city. Both stores buy recliner chairs from the same manufacturer at the same price and both stores are about the same size, so that the fixed costs of production for both stores are the same. Ralph's Recliners sells more recliners per month and Ralph's has a lower average total cost of production. Which of the following can explain why the average total cost of production is lower for Ralph's Recliners?

Accepted Answer

Since both stores buy recliner chairs at the same price and have the same fixed costs, the only way for Ralph's Recliners to have a lower average total cost of production is if it has a higher output level. This means that its average fixed costs are spread out over a larger number of units, resulting in a lower average total cost.

Question 20

If an airport decides to expand by building an additional passenger terminal, and in doing so it lowers its average cost per airplane landing, it was previously operating at

Accepted Answer

The answer of If an airport decides to expand by...

Quiz 11: Technology, Production, and Costs

The River Rouge plant was built by the Ford Motor Company in the 1920s to produce the company's Model A car. Which of the following is evidence that the River Rouge plant suffered from diseconomies of scale?

Minimum efficient scale is defined as the level of output at which

Figure 11-11 Figure 11-11 illustrates the long-run average cost curve for a firm that produces picture frames. The graph also includes short-run average cost curves for three firm sizes: ATC_a, ATC_b and ATC_c. -Refer to Figure 11-11. For output rates greater than 20,000 picture frames per month

Table 11-8 Elegant Settings manufactures stainless steel cutlery. Table 11-8 shows the company's cost data. -Refer to Table 11-8. Elegant Settings experiences

If the long-run average total cost curve is downward-sloping, then the firm is experiencing decreasing returns to scale.

Which of the following is not a reason why firms experience economies of scale?

Diseconomies of scale occur when

In the long run the relevant cost is total cost.

Figure 11-11 Figure 11-11 illustrates the long-run average cost curve for a firm that produces picture frames. The graph also includes short-run average cost curves for three firm sizes: ATC_a, ATC_b and ATC_c. -Refer to Figure 11-11. Constant returns to scale

Which of the following statements explains the difference between diminishing returns and diseconomies of scale?

A curve showing the lowest cost at which a firm is able to produce a given level of output in the long run is

The level of output at which all economies of scale have been exhausted is known as

Table 11-8 Elegant Settings manufactures stainless steel cutlery. Table 11-8 shows the company's cost data. -Refer to Table 11-8. What is the minimum efficient scale of production?

If an airport decides to expand by building an additional passenger terminal, and in doing so it lowers its average cost per airplane landing, then the expansion would provide ________ to the airlines.

If an airport decides to expand by building an additional passenger terminal, and in doing so it lowers its average cost per airplane landing, it was previously operating at

Quiz 11: Technology, Production, and Costs

The River Rouge plant was built by the Ford Motor Company in the 1920s to produce the company's Model A car. Which of the following is evidence that the River Rouge plant suffered from diseconomies of scale?

Minimum efficient scale is defined as the level of output at which

Figure 11-11 Figure 11-11 illustrates the long-run average cost curve for a firm that produces picture frames. The graph also includes short-run average cost curves for three firm sizes: ATCa, ATCb and ATCc. -Refer to Figure 11-11. For output rates greater than 20,000 picture frames per month

Table 11-8 Elegant Settings manufactures stainless steel cutlery. Table 11-8 shows the company's cost data. -Refer to Table 11-8. Elegant Settings experiences

If the long-run average total cost curve is downward-sloping, then the firm is experiencing decreasing returns to scale.

Which of the following is not a reason why firms experience economies of scale?

Diseconomies of scale occur when

In the long run the relevant cost is total cost.

Figure 11-11 Figure 11-11 illustrates the long-run average cost curve for a firm that produces picture frames. The graph also includes short-run average cost curves for three firm sizes: ATCa, ATCb and ATCc. -Refer to Figure 11-11. Constant returns to scale

Which of the following statements explains the difference between diminishing returns and diseconomies of scale?

A curve showing the lowest cost at which a firm is able to produce a given level of output in the long run is

The level of output at which all economies of scale have been exhausted is known as

Table 11-8 Elegant Settings manufactures stainless steel cutlery. Table 11-8 shows the company's cost data. -Refer to Table 11-8. What is the minimum efficient scale of production?

If an airport decides to expand by building an additional passenger terminal, and in doing so it lowers its average cost per airplane landing, then the expansion would provide ________ to the airlines.

If an airport decides to expand by building an additional passenger terminal, and in doing so it lowers its average cost per airplane landing, it was previously operating at

Figure 11-11 Figure 11-11 illustrates the long-run average cost curve for a firm that produces picture frames. The graph also includes short-run average cost curves for three firm sizes: ATC_a, ATC_b and ATC_c. -Refer to Figure 11-11. For output rates greater than 20,000 picture frames per month

Figure 11-11 Figure 11-11 illustrates the long-run average cost curve for a firm that produces picture frames. The graph also includes short-run average cost curves for three firm sizes: ATC_a, ATC_b and ATC_c. -Refer to Figure 11-11. Constant returns to scale