Question 1

Rebecca owns a fitness gym.If she increases the size of her fitness gym and experiences diseconomies of scale as a result,her long-run average total cost curve should be

Accepted Answer

Diseconomies of scale occur when a firm's average total cost increases as the scale of production increases. This means that the long-run average total cost curve would be upward sloping, indicating that as the size of the gym increases, the average total cost per unit will also increase.

Question 2

Use the following graph to answer the following questions.
 
-If the firm expanded its scale of production and found that its average costs did not change,which of the curves would reflect this situation?

Accepted Answer

LRATC2 represents the long-run average total cost curve, which is based on the assumption of constant returns to scale. Therefore, if the firm expanded its scale of production without any change in the average costs, the LRATC2 curve would reflect this situation as it shows a constant average total cost at different levels of output.

Question 3

If a firm experiences diseconomies of scale,its long-run average cost curve is

Accepted Answer

If a firm experiences diseconomies of scale, it means that as the firm increases its production, its long-run average total cost starts to increase. This causes the long-run average cost curve to slope upwards.

Question 4

When firms grow larger,they sometimes add many additional layers of managers between the top executives and the entry-level employees.Because these managers do not actually produce any output themselves,we expect more layers of management to lead to

Accepted Answer

Adding more layers of management can lead to increased bureaucracy, communication difficulties, and slower decision-making. This can result in diseconomies of scale, where the cost per unit of output increases as the firm grows larger.

Question 5

Use the following graph to answer the following questions.
 
-A firm expands its scale of production and finds that its long-run average total cost curve looks like LRATC3.It might look this way because the firm

Accepted Answer

Adding several additional layers of management typically increases a firm's costs, which could result in a higher long-run average total cost curve. This reflects diseconomies of scale, where increasing production leads to higher per-unit costs.

Question 6

When firms grow larger,they sometimes acquire more market power,meaning that they have greater ability to negotiate lower prices with their suppliers.This ability to negotiate lower prices with their suppliers leads to

Accepted Answer

Economies of scale occur when an increase in production leads to a decrease in average cost. Acquiring more market power and the ability to negotiate lower prices with suppliers is an example of an economy of scale, as it leads to lower production costs overall.

Question 7

Use the following graph to answer the following questions.
 
-If the firm expanded its scale of production and found that its average costs increased,which of the curves would reflect this situation?

Accepted Answer

LRATC3 would reflect an increase in average costs because it is higher than the other LRATC curves, indicating higher costs at a larger scale of production. LRATC1 and LRATC2 both show decreasing average costs as scale of production increases, so an increase in costs would not be reflected by these curves.

Question 8

A firm is considering changing its plant size.It calculates the amount of output it would be able to produce and the total cost for various plant sizes,as shown in the accompanying table.If the firm is currently using plant size C,the firm is experiencing which of the following?

Accepted Answer

The table shows that as the firm changes its plant size from A to C, the total cost per unit of output decreases from $6 to $4. However, if the firm were to increase its plant size beyond C to D or E, the total cost per unit of output would increase to $5 and $7, respectively. This indicates that the firm is currently experiencing economies of scale with plant size C, but if it were to increase its plant size further, it would enter the range of diseconomies of scale where the cost per unit of output increases with the level of production.

Question 9

Samantha owns a gas station.If she moves into a larger lot but finds that her average costs have increased in the long run,we know that Samantha is experiencing

Accepted Answer

Diseconomies of scale occur when a business expands and its average costs increase. This can happen because the larger size leads to more inefficiencies, difficulties in coordinating the increased operations, or even the need to hire more managers or workers to manage the larger business. Therefore, Samantha is experiencing diseconomies of scale as her average costs have increased after moving to a larger lot.

Question 10

Use the following graph to answer the following questions.
 
-If the firm expanded its scale of production and found that its average costs decreased,which of the curves would reflect this situation?

Accepted Answer

The answer of Use the following graph to answer the...

Question 11

Rahim owns a candy factory.If he decided to expand the size of his factory so that he could make more candy,how would he know if he is experiencing constant returns to scale?

Accepted Answer

According to the concept of constant returns to scale, if a firm increases its inputs in the same proportion, then its output will increase in the same proportion, and the long-run average cost of making each unit will remain constant. Therefore, if Rahim's long-run average cost of making each piece of candy remains unchanged after he expands the size of his factory, he is experiencing constant returns to scale. Option B suggests decreasing long-run total cost, which is not an indication of constant returns to scale. Option C suggests decreasing long-run average cost, which is an indication of increasing returns to scale. Option D suggests unchanged long-run total cost, which is an indication of constant returns to scale, but it does not provide information about the long-run average cost. Option E suggests increasing long-run average cost, which is an indication of decreasing returns to scale.

Question 12

Joshua owns a suit store.He currently sells around 10,000 suits per year.If he increases the size of his store so that he can display and sell even more suits,and his long-run average total cost remains unchanged,we know that Joshua is experiencing

Accepted Answer

When a firm increases its output and its long-run average total cost remains unchanged, it is experiencing constant returns to scale. This means that the firm's output is increasing at the same rate as its input, leading to no change in the average cost of production per unit.

Question 13

Jamal owns a coffee roasting company.He buys raw coffee beans,roasts them,grinds them,and sells them to stores.He recently moved into a larger factory so that he can sell coffee to more stores.How would Jamal know if he is experiencing constant returns to scale from increasing the size of his factory?

Accepted Answer

Constant returns to scale occur when increasing the scale of production leads to a proportional increase in output, resulting in the long-run average cost per unit of output remaining unchanged.

Question 14

Matilda owns an office supply store.If she decided to expand the size of her store in order to sell more supplies,how would she know if she is experiencing diseconomies of scale?

Accepted Answer

Diseconomies of scale occur when an increase in the size or scale of a business leads to an increase in average costs. Thus, if Matilda's average cost of selling supplies increases after expanding her store, she would be experiencing diseconomies of scale.

Question 15

When a firm grows larger,many additional layers of managers are sometimes added that do not actually produce any output.At the same time,the firm gains additional bargaining power over the prices it pays to its suppliers.If both of these factors have an equal effect,we would expect this firm to experience

Accepted Answer

The answer of When a firm grows larger,many additional layers...

Question 16

If a firm experiences economies of scale,its long-run average cost curve is

Accepted Answer

If a firm experiences economies of scale, it means that as it increases its production levels, its efficiency increases and it becomes cheaper to produce each additional unit. This leads to a downward sloping long-run average cost curve.

Question 17

If a firm's long-run average total costs increase as it increases its scale of production,the firm is experiencing

Accepted Answer

When a firm's long-run average total costs increase as it increases its scale of production, it is experiencing diseconomies of scale. This can occur when the firm becomes too large to efficiently manage and coordinate its operations, leading to higher costs and lower efficiency.

Question 18

Which is the best example of diseconomies of scale?

Accepted Answer

The answer of Which is the best example of diseconomies...

Question 19

Geoffrey owns a wedding dress store.If he increases the size of his store and experiences constant returns to scale as a result,his long-run average total cost curve should be

Accepted Answer

Constant returns to scale means that as inputs are increased by a certain proportion, output increases by that same proportion. This means that the cost per unit of output remains the same regardless of how much is produced. Therefore, the long-run average total cost curve should be horizontal, indicating that there are no economies or diseconomies of scale.

Question 20

Use the following graph to answer the following questions.
 
-A firm expands its scale of production and finds that it is able to negotiate better prices with its suppliers.Which of the curves best applies to this firm?

Accepted Answer