Question 1

Which of the following factors can lead to learning by doing?
A)Substantial loss suffered in the long run
B)Decreasing returns to scale
C)Significant addition to inventory stock
D)Increased skill of the existing workforce

Accepted Answer

Increased skill of the existing workforce can lead to learning by doing, as they gain knowledge and experience through practical application and repetition of tasks. Options A, B, and C are not directly related to learning by doing.

Question 2

Assume that the long run average cost for a representative firm in an industry is minimized at $10 per unit of output.Further assume that total industry output is X at a price of $10,and that each firm in this industry produces 0.2X at an average cost of $10.Under these conditions we would expect the market to have:
A)a single firm.
B)two firms.
C)infinite number of firms.
D)five firms.

Accepted Answer

Given that each firm produces 0.2X of the total industry output X and does so at the minimum long run average cost, it implies that the industry consists of multiple firms. Since one firm produces 0.2X, it would take 5 firms (1/0.2 = 5) to produce the total industry output X, indicating that the market structure supports five firms operating at the minimum long run average cost.

Question 3

Economies of scale:
A)is the same thing as increasing returns to scale.
B)exist if a firm increases its output more than in proportion to its total input cost.
C)exist if a firm increases its output precisely proportional to its total input cost.
D)refers to the ability to make large-scale investments in capital.

Accepted Answer

Economies of scale refer to the cost advantages that a business can achieve by increasing its scale of production. It means that as the scale of production increases, the cost per unit of output decreases. This occurs because fixed costs, such as machinery and buildings, can be spread over more units of output. As a result, a firm can increase its output more than in proportion to its total input cost, which is choice B. Choice A, increasing returns to scale, refers to the situation where output increases more than in proportion to inputs. Choice C is incorrect because it refers to constant returns to scale, where output increases precisely in proportion to inputs. Choice D is not related to economies of scale, but rather to the ability to make large investments in capital.

Question 4

Learning by doing:
A)results in higher costs in the long run than in the short run.
B)is a result of technological progress.
C)increases productivity of the inputs.
D)results from the increased use of inputs in production.

Accepted Answer

Learning by doing refers to the increase in productivity that occurs as a result of the accumulation of knowledge and skill through experience working with a particular set of inputs. As workers become more experienced, they are better able to use the inputs more efficiently, resulting in higher productivity. This increased productivity can lead to lower costs of production and higher profits in the long run.

Question 5

Which of the following changes shift the long-run AC curve?
A)Learning by doing
B)Economies of scale
C)Diminishing marginal productivity
D)Constant returns to scale

Accepted Answer

The answer of Which of the following changes shift the...

Question 6

Some firms can attain lower production costs through their cumulative production experience.The average cost curve of such firms shift downward with each successive bulk increase in total production.The situation described above refers to:
A)economies of scale.
B)economies of scope.
C)learning by doing.
D)the familiarity index.

Accepted Answer

This situation is described as "learning by doing," where firms become more efficient and reduce costs through the accumulation of production experience. This efficiency is not necessarily related to the scale of production or the diversity of products but to the improvement in processes and techniques over time through practice and experience.

Question 7

The possibility of learning by doing ensures:
A)equal profits for all firms in an industry.
B)uniform price for a product.
C)lower production costs to a pioneering firm.
D)lower production costs to a market entrant.

Accepted Answer

Learning by doing refers to the process where a firm becomes more efficient at producing goods or services over time as it gains experience. This often leads to lower production costs for a pioneering firm, as it can improve its processes, reduce waste, and increase productivity through accumulated experience.

Question 8

The technological relationships reflected in the firms' long run cost curves are an important factor in determining the market structure of an industry because:
A)they determine the size of the market.
B)they influence the price elasticity of demand for the product.
C)they influence the demand for the product in the short run.
D)they determine the number of firms that can exist in an industry in the long run.

Accepted Answer

The technological relationships reflected in the firms' long run cost curves determine the minimum efficient scale of production and the level of fixed costs required to achieve it. This, in turn, determines the number of firms that can exist in an industry in the long run. Therefore, choice D is the most appropriate answer. The other options are not directly influenced by technological relationships in the long run cost curves.

Question 9

Assume that with 20L and 30K a given firm can produce 100 units of output and with 40L and 60K it can produce 175 units (where L and K denote the labor and capital inputs).Based on this information,we can conclude that:
A)decreasing returns to scale exist.
B)average cost is decreasing.
C)average cost is constant.
D)increasing returns to scale exist.

Accepted Answer

The answer of Assume that with 20L and 30K a...

Question 10

Decreasing returns to scale imply:
A)decreasing long run average cost and increasing short-run average cost.
B)increasing long run average cost.
C)constant long run average cost.
D)increasing long run average cost and decreasing short run average cost.

Accepted Answer

Decreasing returns to scale means that the increase in inputs does not result in a proportionate increase in output. As a result, the long run average cost increases.

Question 11

The minimum efficient scale is:
A)the level of output at which average cost per unit is smallest.
B)the scale of operations at which marginal cost is minimized.
C)the scale of operations at which average fixed cost per unit is minimized.
D)the level of output at which total cost is minimized.

Accepted Answer

The minimum efficient scale is defined as the level of output at which average cost per unit is smallest. This is because at this point, there is maximum utilization of resources and economies of scale are fully realized, resulting in lower average costs per unit. The other options do not accurately define the minimum efficient scale.

Question 12

An important determinant of market structure is:
A)the difference between short-run average cost and long-run average cost for a given rate of output.
B)the elasticity of market demand where it intersects the industry supply curve.
C)the slope of the expansion path.
D)the level of output at which long-run average cost is at a minimum relative to market demand.

Accepted Answer

The level of output at which long-run average cost is at a minimum relative to market demand is known as the minimum efficient scale (MES) and it is an important determinant of market structure. It is the output level at which the firm achieves the lowest cost per unit, and it determines the extent to which a market can support a large number of firms or only a few dominant firms. The MES is an important factor in determining whether a market is perfectly competitive, monopolistically competitive, oligopolistic, or monopolistic.

Question 13

Long-run costs of production are generally lower than the short run costs because:
A)all inputs are fixed in the long run.
B)firms cannot change their scale of production in the long run.
C)there is greater flexibility in input usage in the long run.
D)there is no scope for learning by doing in the long run.

Accepted Answer

In the long run, firms have greater flexibility in input usage. They can adjust their capital, labor, and other inputs in response to changes in the market. This allows them to optimize their production processes, leading to lower costs in the long run. In the short run, however, some inputs are fixed, which limits a firm's ability to adjust its production processes, and can lead to higher costs.

Question 14

Which of the following is true of learning by doing?
A)It results from economies of scale.
B)It results from an increase in the price of inputs.
C)It results from the substitution of one input by a costlier input.
D)It results from a firm's cumulative output experience.

Accepted Answer

Learning by doing refers to the improvement in a firm's productivity and efficiency that results from a cumulative experience of producing a certain product or service. It is a result of the firm's accumulated output experience, hence option D is correct. Options A, B, and C are incorrect as they do not relate to the concept of learning by doing.

Question 15

Which of the following is true?
A)Diseconomies of scale imply increasing returns to scale.
B)Increasing returns to scale implies diseconomies of scale.
C)Increasing returns to scale implies economies of scale.
D)Economies of scale imply increasing returns to scale.

Accepted Answer

Increasing returns to scale imply economies of scale. This means that when a firm scales up production, it is able to produce output at a lower cost per unit, leading to cost savings and increased efficiency. This is also referred to as positive economies of scale. On the other hand, diseconomies of scale occur when a firm grows too large and experiences higher costs per unit of output. Therefore, B and D are incorrect statements, and A is not true because diseconomies of scale do not imply increasing returns to scale.

Question 16

Learning by doing is illustrated by:
A)a movement along the average cost curve to a lower cost.
B)a downward shift of the average cost curve.
C)a movement along the average cost curve to a higher cost.
D)an upward shift of the average cost curve.

Accepted Answer

Learning by doing typically results in increased efficiency and productivity over time, which is represented by a downward shift of the average cost curve. This shift indicates that the firm can produce at lower costs due to the accumulation of experience and improvements in processes.

Question 17

Suppose a firm has two plants producing the same good.Each plant is producing 200 units of the good.In plant A,the short run average cost of production is $20 and in plant B it is $30.If the firm wants to produce a total of 400 units at the lowest cost in the long run,it should:
A)switch production from plant B to plant A until the average cost of production at each plant is the same.
B)produce only at plant A and shut down plant B.
C)switch production from plant B to plant A until the average cost is the same at the two plants.
D)continue to use the same input ratio.

Accepted Answer

The answer of Suppose a firm has two plants producing...

Question 18

Suppose a bakery is currently producing 1,500 loaves of bread per day using 20 workers and 80 units of capital.After hiring five more workers and twenty additional units of capital,the firm's output increases by 600 loaves per day.This change exhibits:
A)increasing marginal product of labor.
B)constant returns scale.
C)economies of scale.
D)diminishing marginal product of labor.

Accepted Answer

Economies of scale occur when an increase in inputs leads to a more than proportional increase in output. Here, the increase in inputs (workers and capital) results in a significant increase in output, indicating economies of scale.

Question 19

When average costs fall as output increases,it is due to _____;when they fall at a given level of output it is due to _____.
A)economies of scale;learning by doing
B)economies of scale;diseconomies of scale
C)learning by doing;economies of scale
D)learning by doing;diseconomies of scale

Accepted Answer

When average costs fall as output increases, it is due to economies of scale. When they fall at a given level of output, it is due to learning by doing.

Question 20

Learning by doing:
A)is synonymous with economies of scale.
B)causes the average cost curve to shift down.
C)causes the firm's marginal cost curve to shift up and to the left.
D)occurs when output increases in greater proportion to the increase in inputs.

Accepted Answer

Learning by doing leads to increased efficiency and productivity as workers and firms gain experience. This process can cause the average cost of production to decrease over time, hence shifting the average cost curve downward. It is not synonymous with economies of scale (A), does not cause the marginal cost curve to shift up and to the left (C), and does not specifically refer to output increasing in greater proportion to inputs (D), which is more closely related to economies of scale.

Quiz 8: The Cost of Production

Which of the following factors can lead to learning by doing?

Economies of scale:

Learning by doing:

Which of the following changes shift the long-run AC curve?

Some firms can attain lower production costs through their cumulative production experience.The average cost curve of such firms shift downward with each successive bulk increase in total production.The situation described above refers to:

The possibility of learning by doing ensures:

The technological relationships reflected in the firms' long run cost curves are an important factor in determining the market structure of an industry because:

Assume that with 20L and 30K a given firm can produce 100 units of output and with 40L and 60K it can produce 175 units (where L and K denote the labor and capital inputs) .Based on this information,we can conclude that:

Decreasing returns to scale imply:

The minimum efficient scale is:

An important determinant of market structure is:

Long-run costs of production are generally lower than the short run costs because:

Which of the following is true of learning by doing?

Which of the following is true?

Learning by doing is illustrated by:

Suppose a firm has two plants producing the same good.Each plant is producing 200 units of the good.In plant A,the short run average cost of production is $20 and in plant B it is $30.If the firm wants to produce a total of 400 units at the lowest cost in the long run,it should:

Suppose a bakery is currently producing 1,500 loaves of bread per day using 20 workers and 80 units of capital.After hiring five more workers and twenty additional units of capital,the firm's output increases by 600 loaves per day.This change exhibits:

When average costs fall as output increases,it is due to _;when they fall at a given level of output it is due to _.

Learning by doing: