Question 1

Over the past twenty years, the number of small family farms has fallen significantly and in their place there are fewer, but larger, farms owned by corporations.Which of the following best explains this trend?

Accepted Answer

Economies of scale in farming have made it more efficient and profitable for larger, corporate-owned farms to operate, while smaller family farms struggle to compete.

Question 2

The president of Toyota's Georgetown plant was quoted as saying, "Demand for high volumes saps your energy.Over a period of time, it eroded our focus [and] thinned out the expertise and knowledge we painstakingly built up over the years." This quote suggests that

Accepted Answer

The quote suggests that as Toyota Georgetown plant increased production to meet high demand, it experienced diseconomies of scale which eroded focus and thinned out expertise and knowledge. This implies that Toyota expanded its capacity beyond its optimal point and suffered efficiency losses as a result.

Question 3

Figure 11-10
 
-Refer to Figure 11-10.Suppose for the past 8 years the firm has been producing Qd units per period using plant size ATC₄.Now, following a permanent change in demand, it plans to cut production to Qc units.What will happen to its average cost of production?

Accepted Answer

The answer of Figure 11-10
 
-Refer to Figure 11-10.Suppose for...

Question 4

At the minimum efficient scale

Accepted Answer

At the minimum efficient scale, the firm has achieved the lowest possible average cost of production. This means that the firm is operating at the optimal scale in terms of minimizing its cost per unit of output. It does not necessarily mean that all possible economies of scale have been exhausted, or that further increases in scale will not encounter further economies of scale. It also does not necessarily mean that marginal cost is at its minimum, as this can vary depending on the specific production process and technology utilized.

Question 5

When a firm's long-run average cost curve is horizontal for a range of output, then that range of production displays

Accepted Answer

When a firm's long-run average cost curve is horizontal, it means that the firm is experiencing constant returns to scale. This means that as the firm's level of output increases, the cost per unit of output remains constant. This is an indication that the firm is able to take advantage of economies of scale up to that point.

Question 6

The ABC Company manufactures routers that are used to provide high-speed Internet service.ABC sells an average of 1,000 routers each month, but to exhaust economies of scale in its industry ABC would have to sell 3,000 routers each month.Therefore,

Accepted Answer

The statement indicates that ABC would have to sell at least 3,000 routers each month to reach minimum efficient scale, which means that the company is currently operating below its most efficient level of production. This is not an example of diseconomies of scale or diminishing returns, which involve increasing costs or decreasing output as production increases. It is also not necessarily an indication that the company will go out of business.

Question 7

If, when a firm doubles all its inputs, its average cost of production increases, then production displays

Accepted Answer

When a firm doubles all of its inputs and its average cost of production increases, it indicates that the firm is experiencing diseconomies of scale. This means that the firm is becoming less efficient as it grows, which can lead to higher costs and lower profits.

Question 8

Economies of scale exist as a firm increases its size in the long run because of all of the following except

Accepted Answer

As a firm expands its production, its profit margin per-unit of output may actually decrease or remain the same, instead of increasing. Economies of scale are mainly due to the firm's ability to purchase inputs at a lower per unit cost, benefit from specialization of labor and management, and afford more advanced technology.

Question 9

The long-run average cost curve shows

Accepted Answer

The long-run average cost curve depicts the lowest average cost of producing every level of output in the long run as all inputs are variable. It shows the optimal plant size that the firm should build to minimize the average cost of production at each level of output.

Question 10

All of the following statements are true of the minimum efficient scale except one.Which one?

Accepted Answer

The minimum efficient scale refers to the smallest output level at which a firm can produce goods at the lowest possible average cost. While economies of scale may be exhausted at this point, it is not necessarily true that all possible economies of scale have been exhausted. Additionally, it is possible for a firm to experience constant returns to scale or diseconomies of scale beyond the minimum efficient scale. However, an increase in the output level beyond the minimum efficient scale may not necessarily increase profit as demand for the good may not be high enough to sustain higher production levels.

Question 11

The president of Toyota's Georgetown plant was quoted as saying, "Demand for high volumes saps your energy.Over a period of time, it eroded our focus [and] thinned out the expertise and knowledge we painstakingly built up over the years." Based on this quote, what must be true of the plant's average cost of production curve?

Accepted Answer

The quote suggests that the plant experienced diminishing returns to scale, where increasing production led to a decrease in efficiency and expertise. This is consistent with an upward-sloping average cost of production curve.

Question 12

If production displays diseconomies of scale, the long-run average cost curve is

Accepted Answer

When there are diseconomies of scale, the cost of production increases as the scale of production increases. This leads to an upward slope in the long-run average cost curve. Therefore, choice C is the correct answer. Choices A and B are incorrect because they do not accurately describe the relationship between diseconomies of scale and the long-run average cost curve. Choice D is also incorrect because it describes economies of scale, which result in a downward slope in the long-run average cost curve.

Question 13

If a firm decreases its plant size and finds that its long-run average costs have decreased, then

Accepted Answer

If a firm decreases its plant size and finds that its long-run average costs have decreased, it means that its diseconomies of scale have reduced. This indicates that the firm was experiencing diseconomies of scale before and the reduction in plant size has allowed the firm to escape its diseconomies of scale. Therefore, the firm should continue to operate at its current plant size, as decreasing it further may lead to fewer economies of scale and higher long-run average costs.

Question 14

In the long run

Accepted Answer

The answer of In the long run
...

Question 15

What is the difference between "diminishing marginal returns" and "diseconomies of scale"?

Accepted Answer

Diminishing marginal returns only applies in the short run when at least one factor is fixed, and explains why marginal cost increases. Diseconomies of scale applies in the long run when all factors are variable, and explains why average cost increases.

Question 16

The minimum efficient scale is

Accepted Answer

The minimum efficient scale is the level of operation where long-run average costs are lowest. This implies that the plant size at this point would allow the firm to produce at the least possible cost per unit of output, hence increasing their profitability. Options A, B, and D are incorrect because they do not take into account the cost implications of the level of operation.

Question 17

Ford Motor Company started producing the Model A at plants scattered around the United States

Accepted Answer

The Ford Motor Company started producing the Model A at plants scattered around the United States due to diseconomies of scale at its initial River Rouge plant, which resulted in high production costs. This decision was made to increase efficiency and reduce costs through decentralization.

Question 18

Which of the following statements regarding a firm's long-run average total cost (LRATC)curve and its short-run average total cost (SRATC)curve is true?

Accepted Answer

The LRATC curve shows the lowest cost at which a firm is able to produce a given level of output when no inputs are fixed, meaning that all inputs can be adjusted to achieve the most efficient production process. The SRATC curve, on the other hand, only reflects the cost of production in the short run when at least one input is fixed. The shape of the LRATC is affected by various factors such as economies of scale, learning effects, and technological advancements, but not by the law of diminishing returns. Finally, both the SRATC and LRATC include average fixed cost, but the contribution of average fixed cost to LRATC decreases as the level of output increases, while it remains constant in SRATC.

Question 19

Which of the following is a reason why a firm would experience diseconomies of scale?

Accepted Answer

Diseconomies of scale occur when a firm becomes too large and difficult to coordinate its operations. This can lead to a decrease in efficiency and an increase in average costs. Option A is not a reason for diseconomies of scale, but rather a financing decision. Option B is incorrect because a larger firm can expand into new markets, not just rely on existing ones. Option D refers to the challenges of operating in international markets, which may increase costs, but it is not the reason for diseconomies of scale.

Question 20

Figure 11-10
 
-Refer to Figure 11-10.Identify the minimum efficient scale of production.

Accepted Answer

The answer of Figure 11-10
 
-Refer to Figure 11-10.Identify the...

Quiz 11: Technology, Production, and Costs