Question 1

Explain the difference between economies of scale and economies of scope.

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Question 2

Draw typical average total cost, average variable cost, and marginal cost curves for a competitive firm with price at the shutdown point. Show that total revenue equals variable costs at this quantity. Also show the firm's losses at this quantity.

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Question 3

Are there economies of scale for a waiter serving customers in a restaurant? What economies of scale are realized if party sizes increase? Is there a maximum party size beyond which scale diseconomies are experienced?

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Question 4

Consider the weight of the people in a theater. Suppose the first person you notice weighs 160 pounds, the second and third weigh 132 and 108 pounds, respectively.

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Question 5

Use the cost function information provided in the table below to answer the following questions.  (A) Suppose this firm is a price-taker. If the price is $18 per unit, will this firm be earning economic profits? How much? What quantity will it produce?
(B) What is the breakeven price? What is the shutdown price?

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Question 6

Suppose the average total cost curves for a firm for three different amounts of capital are as shown in the table below:

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Question 7

Economies of scale and economies of scope are related and occur for the same reason.

Accepted Answer

Economies of scale refer to cost advantages that enterprises obtain due to size, output, or scale of operation, with costs per unit of output generally decreasing with increasing scale as fixed costs are spread out over more units of output. Economies of scope, however, refer to cost advantages that a business obtains through the variety of products it offers, stemming from the ability to share or utilize the same operations, knowledge, or processes to produce different types of goods or services, rather than just producing more of a single product. While both can lead to cost savings, they occur for different reasons related to the scale and variety of production, respectively.

Question 8

Fill in the table below about the cost structure of a firm.

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Question 9

Plot the following data for quantity of production and long-run average cost for a firm. Are there economies of scale, diseconomies of scale, or constant returns to scale? Indicate these areas in your diagram.

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Question 10

Consider the relationship between the average test score of a class and one student's test score. Suppose there are 10 students with an average test score of 80. Suppose the marginal score is the test score of a new student, Kelly.

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Question 11

Fill in the table below for a competitive firm that can sell its product for $7 a unit.

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Question 12

A firm can experience economies of scope by reducing the variety of products it produces.

Accepted Answer

Economies of scope are achieved by producing a variety of products together, which allows for cost savings in areas such as production, marketing, and distribution. Reducing the variety of products would result in lower economies of scope.

Quiz 8: Costs and the Changes at Firms Over Time