Question 1

When long-run average total cost decreases as output increases,a firm experiences

Accepted Answer

When long-run average total cost decreases as output increases, it means the firm is experiencing economies of scale. This occurs when the firm is able to increase production and reduce costs through increased specialization of labor, bulk ordering of supplies, and other factors that allow the firm to take advantage of efficiencies of scale.

Question 2

When long-run average total cost increases as output increases,a firm experiences

Accepted Answer

Diseconomies of scale occur when a firm's long-run average total cost (LRATC) increases as output increases due to factors such as increased coordination costs, communication costs, and difficulties with control and management. As the firm gets bigger, it becomes harder to manage the production process efficiently, leading to higher costs per unit. Therefore, option A is the correct answer.

Question 3

Assume that an industry requires a very specialized technology that involves high start-up costs for new firms no matter what level of output they produce.In the long run,at low levels of output,these firms will tend to exhibit

Accepted Answer

In the long run, at low levels of output, firms with high start-up costs will tend to exhibit economies of scale, as the average cost per unit decreases with increased production.

Question 4

If all firms in a market have the same LRATC curve,

Accepted Answer

If all firms in a market have the same LRATC curve, the lowest possible long-run price is determined by LRATC at minimum efficient scale. This is because any firm operating at a scale smaller than the minimum efficient scale will have higher costs and eventually exit the market in the long run, leaving only the firms operating at minimum efficient scale or larger. Therefore, the price in the long run would have to be at least equal to the minimum efficient scale LRATC to cover the costs of the surviving firms.

Question 5

Which of the following explains why long-run average total cost at first decreases as output increases?

Accepted Answer

The answer of Which of the following explains why long-run...

Question 6

A lumpy input is one that

Accepted Answer

A lumpy input refers to a resource or factor of production that can only be adjusted in large, discrete amounts rather than in small, incremental changes.

Question 7

-The firm depicted in Figure 7-10 currently is producing 200 units of output per day.If it decides to increase its output level to 375 units,then it will

Accepted Answer

In the short run, some inputs are fixed, so the firm cannot adjust to a new point like G immediately.

Question 8

The firm's long-run average total cost curve

Accepted Answer

The long-run average total cost curve is an envelope curve that touches each short-run average total cost curve at their lowest points, representing the most efficient scale of production for each level of output.

Question 9

-The firm depicted in Figure 7-11 has a larger plant size at point

Accepted Answer

The answer of 
-The firm depicted in Figure 7-11 has...

Question 10

When firms become so large that they have to add additional layers of management and decision making becomes more cumbersome,

Accepted Answer

As firms become larger and add additional layers of management, the costs of coordination and communication increase, resulting in inefficiencies. This leads to a higher long-run average total cost and a sloping upward long-run average total cost curve.

Question 11

If a firm experiences economies of scale,then,as output increases,

Accepted Answer

Economies of scale occur when long-run total costs increase at a slower rate than output, meaning costs rise proportionately less than output as production expands.

Question 12

Long-run average total cost must always be

Accepted Answer

In the long run, firms can adjust all inputs, leading to economies of scale, which can make long-run average total cost less than or equal to short-run average total cost.

Question 13

If a firm increases its output level by 50 percent and,as a result,long-run total cost rises by 40 percent,the firm is experiencing

Accepted Answer

The firm is experiencing economies of scale because the percentage increase in output (50%) is greater than the percentage increase in long-run total cost (40%), indicating that the firm is becoming more efficient as it increases production.

Question 14

If a firm experiences constant returns to scale at all output levels,then its long-run average total cost curve would

Accepted Answer

Constant returns to scale means that when all inputs are increased by the same proportion, output also increases by the same proportion. This implies that the firm's long-run average total cost (LRATC) curve will be a horizontal line, indicating that as the firm increases its output, the average cost per unit remains constant.

Question 15

Diseconomies of scale tend to occur in large firms because

Accepted Answer

Large firms tend to have many layers of management, which can make decision-making slow and bureaucratic. Additionally, it can be difficult to monitor employees in large firms, leading to inefficiencies and diseconomies of scale.

Question 16

If a firm is experiencing constant returns to scale

Accepted Answer

Constant returns to scale means that as production increases, inputs are increased in the same proportion resulting in a constant average cost. This means that long-run average total cost neither rises nor falls as production increases. Therefore, choice A is correct. Average fixed cost is not necessarily zero, so B is incorrect. C and D are also incorrect because the offset in changes in average cost does not necessarily have to be equal. Option E is impossible since a firm would not be able to cover any production costs if the long-run average total cost is zero.

Question 17

If minimum efficient scale is small relative to the maximum potential market,

Accepted Answer

If the minimum efficient scale is small relative to the maximum potential market, it means that small firms can achieve economies of scale without having to produce at a large scale. Therefore, relatively small firms will have a cost advantage over relatively large firms, which will lead to a more competitive market with lower prices.

Question 18

In comparing long-run and short-run costs,which of the following statements is true at each level of output?

Accepted Answer

In the long run, firms can adjust all inputs and choose the most cost-efficient production method, so long-run total cost cannot exceed short-run total cost, where some inputs are fixed.

Question 19

Which of the following would be an excellent example of a lumpy input

Accepted Answer

Pancake griddles are a lumpy input because they are a fixed asset that cannot be easily divided or adjusted in small increments.

Question 20

A firm's minimum efficient scale is defined as

Accepted Answer

The minimum efficient scale is defined as the output level at which LRATC (long-run average total cost) first reaches its minimum level. This means that the firm is producing at the lowest possible average cost per unit and any increase in output beyond this point will cause costs to rise. Therefore, Option A correctly defines the minimum efficient scale of a firm.

Quiz 7: Production and Cost