Question 1

Suppose that a firm's long-run average total costs of producing small commuter jet airplanes increases as it produces between 2,000 and 4,000 airplanes. For this range of output, the firm is experiencing

Accepted Answer

The firm is experiencing diseconomies of scale since its long-run average total costs increase as it produces more output.

Question 2

In the long run, when marginal cost is above average total cost, the average total cost curve exhibits

Accepted Answer

When marginal cost is above average total cost, it means that each additional unit produced is increasing the cost more than the average cost of producing all units up to that point. This indicates that the firm is experiencing diminishing returns to scale and is likely operating beyond its efficient scale. Therefore, the average total cost curve exhibits diseconomies of scale.

Question 3

In the long run a company that produces and sells kayaks incurs total costs of $15,000 when output is 30 kayaks and $20,000 when output is 40 kayaks. The kayak company exhibits

Accepted Answer

The answer of In the long run a company that...

Question 4

In the long run a company that produces and sells covers for cell phones incurs total costs of $2,500 when output is 1,250 covers and $4,000 when output is 1,500 covers. For this range of output, the cell phone cover company exhibits

Accepted Answer

The total costs increased from $2,500 to $4,000 as output increased from 1,250 to 1,500 covers, indicating that the average cost of producing each additional cover increased. This suggests that the company is experiencing diseconomies of scale, where increasing production is leading to higher average costs rather than lower average costs.

Question 5

Suppose that a firm's long-run average total costs of producing an individual income tax return is $75 when it produces 1,000 returns and $75 when it produces 1,200 returns. For this range of output, the firm is experiencing

Accepted Answer

The fact that the long-run average total costs remain constant despite a 20% increase in output indicates that the firm is experiencing constant returns to scale. If the costs had decreased, it would indicate economies of scale, and if they had increased, it would indicate diseconomies of scale. Specialization is not a relevant factor in this scenario.

Question 6

Figure 13-9
The figure below depicts average total cost functions for a firm that produces automobiles. 
-Refer to Figure 13-9. The firm experiences economies of scale at which output levels?

Accepted Answer

Economies of scale occur when increasing production leads to lower average costs. This typically happens at lower levels of output, which is indicated by output levels less than M in the context of the figure.

Question 7

Figure 13-9
The figure below depicts average total cost functions for a firm that produces automobiles. 
-Refer to Figure 13-9. Which of the curves is most likely to characterize the short-run average total cost curve of the smallest factory?

Accepted Answer

The curve ATC_A has the lowest minimum point, indicating the smallest factory with lower output levels and less efficient production processes. The other curves have higher minimum points, implying larger factories with higher output levels and more efficient production processes.

Question 8

Suppose that a firm's long-run average total costs of producing custom wooden picnic tables is $300 when it produces 10,000 tables and $325 when it produces 11,000 tables. For this range of output, the firm is experiencing

Accepted Answer

The firm is experiencing diseconomies of scale because as it increases production from 10,000 to 11,000 tables, its average total cost per table increases from $300 to $325. This suggests that the firm is becoming less efficient as it produces more, leading to an increase in cost per unit.

Question 9

Firms may experience diseconomies of scale when

Accepted Answer

Diseconomies of scale occur when a firm grows so large that its costs per unit increase. This often happens due to bureaucratic inefficiencies in large management structures, where decision-making becomes slower and more complex.

Question 10

Figure 13-9
The figure below depicts average total cost functions for a firm that produces automobiles. 
-Refer to Figure 13-9. Which curve represents the long-run average total cost?

Accepted Answer

The answer of Figure 13-9
The figure below depicts average total...

Question 11

When a firm is experiencing diseconomies of scale, long-run

Accepted Answer

The answer of When a firm is experiencing diseconomies of...

Question 12

In the long run a company that produces and sells dog beds incurs total costs of $1,200 when output is 30 beds and $1,600 when output is 40 beds. Firm A exhibits

Accepted Answer

The answer of In the long run a company that...

Question 13

If a firm experiences constant returns to scale at all output levels, then its long-run average total cost curve would

Accepted Answer

If a firm experiences constant returns to scale at all output levels, it means that it can double its output by doubling its inputs without experiencing any increase in average total cost. Therefore, the long-run average total cost (LRATC) curve would be horizontal because it indicates that the firm can produce any level of output at the same minimum average total cost.

Question 14

When a firm's long-run average total costs do not vary as output increases, the firm exhibits

Accepted Answer

When a firm's long-run average total costs do not vary as output increases, it means that the firm is experiencing constant returns to scale. This suggests that the firm's production technology is such that increasing the scale of production does not lead to any significant increase or decrease in the firm's average cost per unit of output.

Question 15

When a firm experiences diseconomies of scale,

Accepted Answer

Diseconomies of scale occur when the firm grows too large, leading to a decrease in efficiency and an increase in long-run average total cost as output increases. Therefore, the correct answer is C, long-run average total cost increases as output increases.

Question 16

Suppose that a firm's long-run average total costs of producing hand-crafted chairs is $300 when it produces 10,000 chairs and $325 when it produces 11,000 chairs. For this range of output, the firm is likely experiencing

Accepted Answer

The increase in average total costs from $300 to $325 as output increases from 10,000 to 11,000 chairs suggests that the firm is experiencing diseconomies of scale, likely due to coordination problems as the firm grows larger.

Question 17

Diseconomies of scale occur when

Accepted Answer

Diseconomies of scale occur when long-run average total costs rise as output increases. This can happen due to various reasons such as the difficulty in managing a large organization, decreased employee morale in a large workforce, or the cost of coordinating and communicating across various departments.

Question 18

Diseconomies of scale occur when a firm's

Accepted Answer

Diseconomies of scale occur when a firm's long-run average total costs are increasing as output increases. This is often due to increased complexity, bureaucracy, and inefficiencies that arise as a firm grows larger. As a result, the firm may see diminishing returns to scale and higher costs per unit of output.

Question 19

Figure 13-9
The figure below depicts average total cost functions for a firm that produces automobiles. 
-Refer to Figure 13-9. In the long run, the firm can operate on which of the following average total cost curves?

Accepted Answer

In the long run, a firm can adjust all its inputs and can operate on any of the average total cost curves depending on the scale of production it chooses.

Question 20

In the long run a company that produces and sells organic tofu incurs total costs of $1,200 when output is 1,200 units and $1,650 when output is 1,400 units. The tofu company exhibits

Accepted Answer

The fact that total costs increase as output increases suggests that the company is experiencing some level of inefficiency, leading to diseconomies of scale. Furthermore, the fact that average total cost (ATC) is also increasing as output rises provides further evidence of diseconomies of scale. When a company is experiencing economies of scale, both total cost and ATC should be decreasing as output increases.

Quiz 13: The Costs of Production