Question 1

Economies of scope exist when it is less expensive to produce two or more product lines in a single firm than it is to produce them separately.

Accepted Answer

Economies of scope refer to the cost advantages that arise when a firm produces multiple products together rather than separately. This can result in lower production costs, shared resources, and greater efficiency. Therefore, it is true that economies of scope exist when it is less expensive to produce two or more product lines in a single firm than it is to produce them separately.

Question 2

Suppose a company that produces mouthwash branches out into producing toothpaste.If this expansion reduces the average cost per unit, the company must

Accepted Answer

The reduction in average cost per unit due to the expansion into producing a related product (toothpaste) indicates economies of scope, where cost savings arise from producing multiple products together rather than separately.

Question 3

A tire manufacturer decides to expand into the production of rubber roofing and as a result finds that its per unit production costs for tires falls.This is an example of economies of scope.

Accepted Answer

Economies of scope refer to the cost savings that a company can achieve by producing multiple products together. In this case, the tire manufacturer is able to lower production costs for tires by expanding into rubber roofing, indicating the presence of economies of scope.

Question 4

Economies of scope is the term used to describe an industry that is composed of firms having substantial economies of scale.

Accepted Answer

Economies of scope refer to the cost advantages that arise from producing a variety of products or services, while economies of scale refer to the cost advantages that arise from producing a large quantity of a single product or service. Thus, an industry with economies of scope may have firms producing a variety of products, but not necessarily with substantial economies of scale.

Question 5

According to the search model, Consumer Reports magazine benefits consumers by increasing the marginal benefit of information.

Accepted Answer

The answer of According to the search model, Consumer Reports...

Question 6

A farmer doubles her acreage of corn and as a result finds that her costs per bushel of corn drop.She has experienced economies of scope.

Accepted Answer

Economies of scope refer to cost advantages that a business obtains due to a broader scope of operations, typically by producing multiple products. The scenario describes economies of scale, where cost per unit decreases as production increases.

Question 7

If a firm experiences economies of scope, per unit production costs fall as it produces more than one kind of product.

Accepted Answer

Economies of scope occur when producing multiple products allows a firm to share resources and reduce costs. Therefore, per unit production costs decrease as the firm produces more than one type of product.

Question 8

According to the search model, the marginal benefit of acquiring information about a product is greater for expensive items than for cheap items.

Accepted Answer

According to the search model, the cost of acquiring information is a constant, so the higher the price of the item, the greater the potential benefit of acquiring information. Therefore, the marginal benefit of acquiring information is greater for expensive items than for cheap items.

Question 9

Consumer Reports magazine benefits consumers by

Accepted Answer

Consumer Reports reduces the marginal cost of information by providing information on products, allowing consumers to make better purchasing decisions without having to invest significant time and effort into researching.

Question 10

Which of the following is the most likely result when there are economies of scope?

Accepted Answer

Economies of scope mean that producing multiple products together is more cost-effective than producing them separately. Therefore, the most likely result would be multi-product firms that produce multiple products together to take advantage of economies of scope.

Question 11

A horizontally integrated firm produces products in a variety of industries (e.g., General Electric, which produces jet engines, air conditioners and microwave ovens).

Accepted Answer

A horizontally integrated firm operates in the same industry but expands its operations by acquiring or merging with other companies at the same level of the supply chain, not across different industries.

Question 12

If a firm that experiences economies of scope doubles its production of an item, its costs will less than double.

Accepted Answer

Economies of scope refer to cost advantages from producing a variety of products, not from increasing the production of a single item. Doubling production of one item relates to economies of scale, not scope.

Question 13

If a firm experiences economies of scope,

Accepted Answer

Economies of scope refer to the cost advantages that a firm can achieve by producing a variety of products. When a firm produces multiple products, it can spread its fixed costs across a larger production base, resulting in lower average production costs. Therefore, the firm's average production costs fall when it produces more than one kind of product.

Question 14

Which of the following is an example of a producer taking advantage of economies of scope?

Accepted Answer

A dairy farmer producing both cow's milk and butter is an example of economies of scope, as producing these two products together reduces overall costs and increases efficiency. The other options involve either expansion of production (A, C, E) or contraction due to decreased demand (B), but do not involve taking advantage of economies of scope.

Question 15

The optimal searcher is likely to not even attempt to secure perfect information even if it is possible to achieve it.

Accepted Answer

The optimal searcher understands that perfect information is often unattainable or too costly to obtain, and instead focuses on gathering enough relevant information to make informed decisions. Therefore, they are unlikely to waste resources attempting to secure perfection.

Question 16

If a firm experiences economies of scope, per unit production costs fall as it produces more and more of its product.

Accepted Answer

Economies of scope refer to cost advantages that a firm experiences when it produces a variety of products, not necessarily more of a single product.

Question 17

Reliable information is

Accepted Answer

Reliable information is costly for both producers and consumers because it requires resources to gather, verify, and maintain accuracy.

Question 18

Suppose a company that produces furniture wax branches out into producing a dusting product like Lemon-Dust-Away.If this expansion is efficient, the company must

Accepted Answer

Producing multiple related products can result in cost savings and increased efficiency, which is known as economies of scope. In this case, the furniture wax and dusting product are related and can potentially be produced and marketed together, resulting in economies of scope for the company.

Question 19

For most consumers, the process of learning about the efficiency and durability of various brands of refrigerators can be considered

Accepted Answer

Learning about the efficiency and durability of different brands of refrigerators requires nonmarket work, as it involves researching and gathering information outside of the market or buying transaction. It may not be costless, but it is necessary for making an informed purchasing decision. Therefore, option D is the most appropriate choice.

Question 20

For most consumers, the process of gathering information can be considered

Accepted Answer

Gathering information can be considered as nonmarket work as it involves time and effort on the part of the consumer without any monetary compensation.

Quiz 14: Transaction Costs, Imperfect Information, and Behavioral Economics