Question 1

A firm that has diminishing returns in the management's ability to use and disseminate information as it increases production in the long run is an example of:
A)economies of scale.
B)diseconomies of scale.
C)being too small for the relevant market.
D)not having enough managers.

Accepted Answer

Diminishing returns in the management's ability to use and disseminate information as production increases is a sign of diseconomies of scale. This implies that the firm is becoming too big and complex, making it difficult for management to efficiently communicate and coordinate operations.

Question 2

In the long run, all costs are:
A)fixed.
B)constant.
C)variable.
D)marginal.

Accepted Answer

In the long run, all costs are variable. This is because in the long run, a firm can adjust all of its inputs, including its capital, which can lead to changes in its costs. As a result, there are no fixed costs in the long run, and all costs become variable. In the long run, all costs are variable as businesses have the flexibility to adjust their inputs and production levels. Fixed costs become variable in the long run as businesses can make changes to their capital requirements or lease agreements. Constant costs are not present in the long run as businesses have the opportunity to adjust their production levels which lead to changes in costs. Marginal costs are just the additional costs incurred from producing one more unit of output and do not represent all costs in the long run.

Question 3

In the long run:
A)the firm considers all factors as fixed.
B)the firm considers all factors as variable.
C)production choices are more limited than in the short run.
D)production is always greater than zero.

Accepted Answer

In the long run, all factors of production are considered to be variable, which allows the firm greater flexibility in making production decisions. This means that the firm can adjust all inputs, including capital and labor, to achieve its desired level of output. In the long run, all factors of production are variable, meaning the firm can adjust all inputs and change production levels accordingly. Therefore, the firm considers all factors as variable in the long run.

Question 4

When diseconomies of scale occur, the:
A)long-run average cost curve rises.
B)marginal cost curve declines.
C)average total cost curve declines.
D)average variable cost curve declines.

Accepted Answer

Diseconomies of scale occur when a firm becomes too large and experiences inefficiency and increased costs. When this happens, the long-run average cost curve rises due to the increased cost of production. Therefore, option A is the correct answer. Marginal cost, average total cost, and average variable cost curves are not directly affected by diseconomies of scale.

Question 5

The slope of a long-run average total cost curve exhibiting diseconomies of scale is:
A)zero.
B)infinite.
C)positive.
D)negative.

Accepted Answer

The slope of a long-run average total cost curve exhibiting diseconomies of scale is positive, meaning the cost per unit of output increases as the scale of production increases. The slope of the long-run average total cost curve will be positive in the case of diseconomies of scale. This is because as output increases, the cost per unit rises, indicating that the firm is facing increasing costs of production. If the slope were zero, that would imply constant returns to scale, while a negative slope would indicate economies of scale. An infinite slope is not possible in this case.

Question 6

(Table: Long-Run Total Cost) Look at the table Long-Run Total Cost.Over what range of output does this soybean grower experience constant returns to scale?
A)the first and second bushels .
B)the third and fourth bushels .
C)the fourth and fifth bushels .
D)the fifth and sixth bushels

Accepted Answer

The soybean grower experiences constant returns to scale over the range of output from the third and fourth bushels. This is because the total cost increases from $170 to $200 when output increases from 2 to 3 bushels, and then again from $200 to $240 when output increases from 3 to 4 bushels. The increase in total cost from 2 to 3 bushels is $30, or 15%, while the increase in output from 2 to 3 bushels is also 15%. Similarly, the increase in total cost from 3 to 4 bushels is $40, or 20%, while the increase in output from 3 to 4 bushels is also 20%. Therefore, the soybean grower experiences constant returns to scale over the output range from the third and fourth bushels.

Question 7

Figure: Long-Run and Short-Run Average Cost Curves   (Figure:Long-Run and Short-Run Average Cost Curves ) Look at the figure Long-Run and Short-Run Average Cost Curves.If a firm is producing at point C on the ATC2 but anticipates increasing output to 225,000 units in the long run, the firm will build a ________ plant and have _.
A)smaller; economies of scale
B)smaller; diseconomies of scale
C)bigger; economies of scale
D)bigger; diseconomies of scale

Accepted Answer

The answer of Figure: Long-Run and Short-Run Average Cost Curves...

Question 8

The long-run average cost curve will be upward sloping when the firm is experiencing:
A)economies of scale.
B)diseconomies of scale.
C)constant returns to scale.
D)diminishing returns.

Accepted Answer

When a firm experiences diseconomies of scale, their long-run average cost will increase as they produce more output. This can be due to various factors, such as increased coordination costs or a lack of efficient use of resources. As a result, the long-run average cost curve will be upward sloping in this scenario.

Question 9

When an increase in the firm's output reduces its long-run average total cost, it undergoes:
A)increasing returns to scale.
B)decreasing returns to scale.
C)constant returns to scale.
D)variable returns to scale.

Accepted Answer

When an increase in output reduces the long-run average total cost, it is an indication of increasing returns to scale. This implies that as the firm expands its operations and increases its output, it is able to achieve greater economies of scale and reduce its average cost of production.

Question 10

When an increase in the firm's output reduces its long-run average total cost, it achieves:
A)economies of scale.
B)diseconomies of scale.
C)constant returns to scale.
D)variable returns to scale.

Accepted Answer

When an increase in the firm's output reduces its long-run average total cost, it achieves economies of scale. This means that the firm is benefiting from the advantages of producing on a larger scale, such as lower costs for inputs, better utilization of resources, and greater specialization. Thus, the firm can produce more efficiently and with lower per-unit costs, resulting in an increase in profits or a reduction in prices for consumers.

Question 11

It is common in large beer breweries for the long-run average total cost to decline as output increases.This indicates that many breweries operate under:
A)diseconomies of scale.
B)diminishing marginal returns.
C)economies of scale.
D)constant returns to scale.

Accepted Answer

The scenario described is consistent with economies of scale, which occur when the cost per unit of output decreases as production volume increases due to factors such as specialization, increased bargaining power with suppliers, and spreading fixed costs over a larger output level. In contrast, diseconomies of scale occur when the cost per unit of output increases as production volume increases, while constant returns to scale occur when the cost per unit of output remains constant regardless of the scale of production. Diminishing marginal returns, while related to economies of scale, refer to the decrease in incremental output that results from adding more units of a variable input, rather than the long-run average cost of production.

Question 12

The slope of a long-run average total cost curve exhibiting decreasing returns to scale is:
A)zero.
B)infinite.
C)positive.
D)negative.

Accepted Answer

The slope of the long-run average total cost curve reflects the rate of change in cost as a firm increases its level of output. A long-run average total cost curve that exhibits decreasing returns to scale indicates that the cost per unit of output increases as the level of output increases. This implies that the slope of the curve is positive. The slope of the long-run average total cost curve is the measure of the rate at which the average cost changes with respect to output. If a firm experiences decreasing returns to scale, it means that as it increases its output, the average cost increases at a faster rate. Therefore, the slope of the long-run average total cost curve is positive for such firms.

Question 13

A firm that is able to utilize more efficiently its inputs as it increases production in the long run is an example of:
A)economies of scale.
B)diseconomies of scale.
C)labor-intensive production.
D)capital-intensive production.

Accepted Answer

Economies of scale refer to the cost advantages that a company can achieve by increasing its scale of production. This can include the ability to utilize inputs more efficiently, leading to lower per-unit costs as production increases in the long run. Therefore, a firm that is able to utilize its inputs more efficiently as it increases production is an example of economies of scale.

Question 14

The long-run average total cost of producing 100 units of output is $4, while the long-run average cost of producing 110 units of output is $4.These numbers suggest that the firm producing this output has:
A)economies of scale.
B)diseconomies of scale.
C)constant returns to scale.
D)diminishing returns.

Accepted Answer

Constant returns to scale occur when a firm's long-run average cost curve is flat, indicating that the cost per unit of output remains unchanged as the firm increases its scale of production. The fact that the long-run average cost remains constant at $4 regardless of whether the firm produces 100 or 110 units suggests that the firm is operating under constant returns to scale. There are no economies or diseconomies of scale present in this scenario. Diminishing returns would be indicated by an increase in the average total cost as output increases, which is not the case here. The fact that the long-run average cost does not change between producing 100 and 110 units suggests that the firm is experiencing constant returns to scale, meaning that increasing output does not significantly impact the cost per unit. If the cost had decreased as output increased, it would indicate economies of scale, while an increase in cost would indicate diseconomies of scale. Diminishing returns, on the other hand, refers to a point where adding more inputs results in a proportionally smaller increase in output, which is not applicable to this scenario.

Question 15

Buffalo Aircraft doubles the amount of all of the inputs it uses-the factory doubles in size and twice as many workers are hired.After this expansion, the number of aircraft produced triples.This means that Buffalo Aircraft is operating with:
A)increasing marginal cost.
B)economies of scale.
C)increasing average total cost.
D)decreasing average variable cost.

Accepted Answer

The fact that the number of aircraft produced triples after the expansion indicates that Buffalo Aircraft is experiencing economies of scale. This means that as the company increases its production levels, its average cost of production decreases.

Question 16

The U-shape of the long-run average total cost curve is primarily due to:
A)technological change.
B)economies and diseconomies of scale.
C)increasing and then diminishing returns.
D)diminishing returns.

Accepted Answer

The U-shape of the long-run average total cost curve is primarily due to economies and diseconomies of scale. In the beginning, as production increases, there are economies of scale which result in lower average total costs. Beyond a certain point, however, diseconomies of scale set in and average total costs start increasing. This is why the long-run average total cost curve is U-shaped. The U-shape of the long-run average total cost curve is primarily due to economies and diseconomies of scale. In the beginning, as output increases, the cost per unit decreases due to economies of scale. However, at a certain point, the firm starts experiencing diseconomies of scale, resulting in an increase in the cost per unit produced. This leads to the U-shape of the long-run average total cost curve.

Question 17

If a firm has lower costs per unit as it increases production in the long run, this is an example of:
A)increasing returns to scale.
B)decreasing returns to scale.
C)increasing opportunity costs.
D)scale reduction.

Accepted Answer

Increasing returns to scale occur when a firm's output increases at a greater rate than its inputs, resulting in lower costs per unit as production increases. This is also known as economies of scale.

Question 18

(Table: Workers and Output) After graduation you achieve your dream of opening your own art shop that specializes in selling mud statues.You pay $10 per day on a loan from your uncle, and you pay $10 per day to each of your workers (who make the mud statues).After careful study, you determine the production information in the table.The variable cost of producing 25 statues is
A)$10
B)$20
C)$25
D)$35

Accepted Answer

The answer of (Table: Workers and Output) After graduation you...

Question 19

A university that benefits from lower costs per enrolled student as it builds more buildings and enrolls more students is an example of a service provider with:
A)economies of scale.
B)diseconomies of scale.
C)increasing opportunity costs.
D)scale reduction.

Accepted Answer

The university benefits from lower costs per enrolled student as it builds more buildings and enrolls more students, indicating that it has economies of scale. This means that as the university grows, the cost per student decreases, resulting in greater efficiency and cost-effectiveness for the service provider. The situation described in the scenario indicates that the university is experiencing economies of scale. As it grows, it benefits from lower costs per student, which is a characteristic of this concept.

Question 20

(Table: Workers and Output) After graduation you achieve your dream of opening your own art shop that specializes in selling mud statues.You pay $10 per day on a loan from your uncle, and you pay $10 per day to each of your workers (who make the mud statues).After careful study, you determine the production information in the table.The total cost of producing 25 statues is
A)$10
B)$20
C)$25
D)$30

Accepted Answer

The answer of   (Table: Workers and Output) After...

Quiz 11: Behind the Supply Curve: Inputs and Costs

A firm that has diminishing returns in the management's ability to use and disseminate information as it increases production in the long run is an example of:

In the long run, all costs are:

In the long run:

When diseconomies of scale occur, the:

The slope of a long-run average total cost curve exhibiting diseconomies of scale is:

(Table: Long-Run Total Cost) Look at the table Long-Run Total Cost.Over what range of output does this soybean grower experience constant returns to scale?

The long-run average cost curve will be upward sloping when the firm is experiencing:

When an increase in the firm's output reduces its long-run average total cost, it undergoes:

When an increase in the firm's output reduces its long-run average total cost, it achieves:

It is common in large beer breweries for the long-run average total cost to decline as output increases.This indicates that many breweries operate under:

The slope of a long-run average total cost curve exhibiting decreasing returns to scale is:

A firm that is able to utilize more efficiently its inputs as it increases production in the long run is an example of:

The long-run average total cost of producing 100 units of output is $4, while the long-run average cost of producing 110 units of output is $4.These numbers suggest that the firm producing this output has:

Buffalo Aircraft doubles the amount of all of the inputs it uses-the factory doubles in size and twice as many workers are hired.After this expansion, the number of aircraft produced triples.This means that Buffalo Aircraft is operating with:

The U-shape of the long-run average total cost curve is primarily due to:

If a firm has lower costs per unit as it increases production in the long run, this is an example of:

A university that benefits from lower costs per enrolled student as it builds more buildings and enrolls more students is an example of a service provider with: