Question 1

The example of the very big ships demonstrates that economies of scale result from specialization.

Accepted Answer

Economies of scale refer to the cost advantages that result from increased production, and specialization is one way to achieve this. In the case of very big ships, the high level of specialization involved in designing and building such large vessels allows for cost savings and increased efficiency, thus demonstrating the principle of economies of scale.

Question 2

Fixed costs are those costs that remain fixed no matter how long the time horizon is.

Accepted Answer

Fixed costs remain constant within a relevant range of activity or over a short to medium term, but they can change over the long term due to factors like inflation, renegotiation of contracts, or changes in business scale.

Question 3

Diseconomies of scale often arise because higher production levels allow specialization among workers.

Accepted Answer

Diseconomies of scale often arise due to inefficiencies associated with managing a larger workforce and operations, not because of specialization, which typically contributes to economies of scale by increasing efficiency.

Question 4

The production function depicts a relationship between which two variables? Draw a production function that exhibits diminishing marginal product.

Accepted Answer

The answer of The production function depicts a relationship between...

Question 5

What are opportunity costs? How do explicit and implicit costs relate to opportunity costs?

Accepted Answer

The answer of What are opportunity costs? How do explicit...

Question 6

The average total-cost curve is unaffected by diminishing marginal product.

Accepted Answer

Diminishing marginal product affects the shape of the average total-cost curve by causing it to initially decrease and then increase at higher levels of output. This is because as output increases, the additional input required to produce each additional unit becomes progressively less efficient, leading to higher average costs.

Question 7

A key difference between accountants and economists is their different treatment of the cost of capital. Does this cause an accountant’s estimate of total costs to be higher or lower than an economist’s estimate? Explain.

Accepted Answer

The answer of A key difference between accountants and economists...

Question 8

The shape of the marginal-cost curve tells a producer something about the marginal product of her workers.

Accepted Answer

The shape of the marginal-cost curve is linked to the law of diminishing marginal returns, which means that as a producer hires more workers, the marginal product of each additional worker decreases. As a result, the marginal cost of producing each additional unit increases, resulting in an upward-sloping marginal cost curve. Therefore, the shape of the marginal-cost curve can provide information about the productivity of additional workers.

Question 9

In some cases,specialization allows larger factories to produce goods at a lower average cost than smaller factories.

Accepted Answer

Specialization allows factories to focus on producing a specific product or part, leading to increased efficiency and lower costs. This can be especially beneficial for larger factories with economies of scale.

Question 10

When average total cost rises if a producer either increases or decreases production,then the firm is said to be operating at efficient scale.

Accepted Answer

When average total cost rises with either an increase or decrease in production, it means the firm is producing at the quantity where average total cost is minimized, which is known as the efficient scale.

Question 11

The marginal-cost curve intersects the average-total-cost curve at the minimum point of the average-total-cost curve.

Accepted Answer

This statement is a fundamental concept in microeconomics and is known as the "zero-profit theorem." The marginal cost curve intersects the average total cost curve at its minimum point because at that point, the firm is producing at the most efficient level with the lowest possible average cost.

Question 12

Average total cost reveals how much total cost will change as the firm alters its level of production.

Accepted Answer

Average total cost shows the cost per unit of output, not how total cost changes with production levels.

Question 13

How would a production function that exhibits decreasing marginal product affect the shape of the total-cost curve? Explain and draw a graph.

Accepted Answer

The answer of How would a production function that exhibits...

Question 14

As a firm moves along its long-run average-cost curve,it is adjusting the size of its factory to the quantity of production.

Accepted Answer

This statement is true. As a firm increases or decreases its production, it will adjust the size of its factory accordingly to achieve the most efficient level of output, which is where the long-run average cost is minimized. This is achieved by optimizing the use of all factors of production, including capital, labor, and materials.

Question 15

The average-total-cost curve reflects the shape of both the average-fixed-cost and average-variable-cost curves.

Accepted Answer

The average-total-cost curve is the sum of the average-fixed-cost and average-variable-cost curves. Therefore, its shape will reflect the shape of both curves.

Question 16

If the marginal-cost curve is rising,so is the average-total-cost curve.

Accepted Answer

The average-total-cost curve can be falling even if the marginal-cost curve is rising, as long as the marginal cost is below the average total cost.

Question 17

Average total cost and marginal cost are merely ways to express information that is already contained in a firm's total cost.

Accepted Answer

This statement is true. Average total cost is the total cost per unit of output, while marginal cost is the cost of producing one additional unit of output. Both of these measures are derived from the firm's total cost, which includes all costs of production regardless of output level. Therefore, the information contained in average total cost and marginal cost is already inherent in the firm's total cost.

Question 18

The use of specialization to achieve economies of scale is one reason modern societies are as prosperous as they are.

Accepted Answer

Specialization allows individuals and businesses to focus on their specific areas of expertise, increasing efficiency and productivity, which leads to economies of scale. This leads to the production of goods and services at a lower cost, which contributes to economic growth and prosperity in modern societies.

Question 19

Because of the greater flexibility that firms have in the long run,all short-run-cost curves lie on or above the long-run curve.

Accepted Answer

In the long run, firms have the ability to adjust all inputs, whereas in the short run at least one input is fixed. This greater flexibility in the long run means that firms can produce at a lower cost than in the short run. Therefore, all short-run cost curves must lie on or above the long-run cost curve.

Question 20

The fact that many decisions are fixed in the short run but variable in the long run has little impact on the firm's cost curves.

Accepted Answer

The fact that decisions are fixed in the short run but variable in the long run does have an impact on the firm's cost curves. In the short run, fixed costs are incurred regardless of the level of output, leading to a higher average cost per unit of output. In the long run, the firm can adjust its fixed costs and achieve a lower average cost per unit of output. This is reflected in the shape of the firm's cost curves, with the short-run average cost curve being U-shaped and the long-run average cost curve being downward-sloping.

Quiz 13: The Costs of Production